ý
ANNUAL FINANCIAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ____________
to ____________

(Exact name of Registrant as specified
in its charter)

Florida

001-34462

65-0925265

(State of Incorporation)

(Commission File Number)

(IRS Employer Identification No.)

One North Federal Highway, Boca Raton, Florida

33432

(Address of principal executive offices)

(Zip Code)

(561) 362-3435

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on which Registered

Common Stock, $0.01 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section
12(g) of the Act: None

Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o
No x

Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes x
No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. o

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Smaller Reporting Company o

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value of the registrant’s
common stock, $0.01 par value per share, held by non-affiliates of the registrant on June 30, 2013, the last business day of the
registrant’s most recently completed second fiscal quarter, was approximately $210 million (based on the sales price at which
of the Registrant’s common stock was last sold on that date). Shares of the registrant’s common stock held by each
officer and director and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant
have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not a determination
for other purposes.

Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding at January 31, 2014

Common Stock, $0.01 par value per share

34,288,841 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for the Annual Meeting of Shareholders
to be held on May 27, 2014 are incorporated by reference in Part III.

This Annual Report on Form 10-K contains
“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions
that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond
our control. The words “may,” “could,” “should,” “would,” “believe,”
“anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,”
“goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their
nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking
statements. In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our
actual results to differ materially from those in the forward-looking statements include, without limitation:

§

our ability to comply with the terms of the loss sharing agreements with the FDIC;

the effects of harsh weather conditions, including hurricanes, and man-made disasters;

§

our ability to comply with the extensive laws and regulations to which we are subject; the willingness of customers to accept third-party products and services rather than our products
and services and vice versa;

§

technological changes;

§

negative publicity and the impact on our reputation;

§

the effects of security breaches and computer viruses that may affect our computer systems;

§

changes in consumer spending and saving habits;

§

changes in accounting principles, policies, practices or guidelines;

§

the limited trading activity of our common stock;

§

the concentration of ownership of our common stock; our ability to retain key members of management;

§

anti-takeover provisions under federal and state law as well as our Articles of Incorporation
and our Bylaws;

§

other risks described from time to time in our filings with the Securities and Exchange Commission;

§

and our ability to manage the risks involved in the foregoing.

However, other factors besides those listed in Item 1A Risk Factors
or discussed in this Annual Report also could adversely affect our results, and you should not consider any such list of factors
to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak
only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable
law.

2

PART I

Item 1. Business

About Us

General

We are a financial holding company headquartered in Boca
Raton, Florida. Our principal subsidiary, 1st United Bank, is a Florida-chartered commercial bank, which operates 21
banking centers in Florida, from Central Florida through the Treasure Coast to Southeast Florida, including Brevard, Broward, Hillsborough,
Indian River, Miami-Dade, Orange, Palm Beach and Pinellas Counties. Over the past ten years, we have grown under the stewardship
of our highly experienced executive management team. Specifically, we have:

▪

increased total assets from $66.8 million to $1.845 billion;

▪

increased total net loans from $39.6 million to $1.125 billion;

▪

grown non-interest bearing deposits from $4.6 million to $526 million; and

▪

expanded our branch network from one location to 21 locations.

In this report, the terms “Company,” “Bancorp,”
“we,” “us,” or “our” mean 1st United Bancorp, Inc. and all of its consolidated subsidiaries.
“1st United” or the “Bank” means 1st United Bank, a Florida chartered commercial
bank.

Our Competitive Advantage

We believe we distinguish ourselves from our competitors through
the following competitive strengths:

Community Bank Philosophy. We operate with a
community banking philosophy where we seek to develop broad customer relationships based on service and convenience while
maintaining our conservative approach to lending and strong asset quality. We operate with a private bank ethic for our
business, professional, and individual clients. Due to large banking organizations moving their focus to large corporate
clients rather than customers in our local communities and the heightened level of consolidation activity among banks in
Florida, we believe that our emphasis on personal service will enhance our ability to compete successfully and capitalize on
dissatisfaction among customers of larger institutions.

Experienced Management. We believe our success
has been built on the strength of our management team and board of directors. Our executive management team has extensive
Florida banking experience, collectively over 128 years in the Florida banking market, as well as valuable community and
business relationships in our core markets.

Growth Strategies. We have maintained our focus on
a strategy of opportunistic expansion and have sought to enhance our franchise by increasing market share in our core markets.
As a result, we have completed three FDIC-assisted transactions and two whole bank acquisitions since December 2009. Our executive
management team has extensive merger and acquisition experience which we intend to leverage along with our favorable financial
position to take advantage of acquisitions that may become available in our market areas. We will continue to be disciplined as
it pertains to future acquisitions and only pursue those opportunities that meet our strategic objectives.

Market Opportunity. We operate in what we believe to
be some of the most attractive markets in Florida. The community banking industry in these markets remains somewhat distressed.
We believe that this distress will give us opportunities to acquire other institutions and increase our market share. We believe
we are well-positioned to capitalize on these opportunities.

Focus on Asset Quality. We strive to maintain a high-quality
loan portfolio and maintain the quality of our assets. As a result of what we believe to be conservative underwriting standards,
prudent loan approval authority levels and procedures, experienced loan officers with an intimate knowledge of the local market,
and diligent monitoring of the loan portfolio, our asset quality continues to compare favorably relative to industry and local
peers.

Core Deposit Growth. A key source of our strong
balance sheet growth has been the generation of a stable base of core deposits. It is our strategy to have a mix of core
deposits, which favors non-interest deposits in the range of 15% to 30% of total deposits with time deposits comprising 50%
or less of total deposits. As of December 31, 2013, approximately 34% and 19% of our total deposits were comprised of
non-interest deposits and time deposits, respectively.

3

Net Interest Margin. Our stable funding base consisting
primarily of core deposits, coupled with our credit quality, results in a higher net interest margin compared to our peer group
of Florida-chartered commercial banks with assets between $500 million and $2 billion, based on data derived from the FDIC Call
Reports. Our net interest margin for the fiscal year ended December 31, 2013 was 5.29%. Inclusive within the 5.29% was 1.13% related
to the resolution and change in cash flows on acquired assets. Although the historical low interest rate environment has reduced
the relative benefit of our low cost funding base, we believe the consistency and low cost nature of our deposits will prove to
be more of a competitive advantage in a rising rate environment.

Our Business Strategy

Our business strategy has been to maintain a community bank
philosophy, which we believe has been enhanced despite the prodigious growth we have experienced recently, of focusing on and understanding
the individualized banking needs of the businesses, professionals and other residents of the local communities surrounding our
banking centers. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of
personal service and differentiates us from larger competitors. As a locally managed institution with strong ties to the community,
our core customers are primarily comprised of small-to medium-sized businesses, professionals and community organizations who prefer
to build a banking relationship with a community bank that offers and combines high quality, competitively priced banking products
and services with personalized service. Because of our identity and origin as a locally-owned and operated bank, we believe that
our level of personal service provides a competitive advantage over the larger out-of-state banks, which tend to consolidate decision-making
authority outside local communities.

A key aspect of our current business strategy is to foster
a community-oriented culture where our customers and employees establish long-standing and mutually beneficial relationships. We
believe that with our focus on community banking needs and customer service, together with a comprehensive suite of deposit and
loan products typically found at larger banks, a highly experienced management team and strategically located banking centers,
we are well-positioned to be a strong competitor within our market area. A central part of our strategy is generating core deposits
to support growth of a strong and stable loan portfolio.

Growth Through Acquisitions

We intend to continue to opportunistically expand and grow
our business by building on our business strategy and increasing market share in our key Florida markets. We believe the demographics
and growth characteristics within the communities we serve will provide significant franchise enhancement opportunities to leverage
our core competencies while acquisitive growth will enable us to take advantage of the extensive infrastructure and scalable platform
that we have assembled.

A significant portion of our growth has been through acquisitions.
Under our current management team, we have consummated eight transactions since 2004:

Acquired Bank

Headquarters

Year Acquired

First Western Bank

Cooper City, Florida

2004

Equitable Bank

Fort Lauderdale, Florida

2008

Citrus Bank, N.A.(1)

Vero Beach, Florida

2008

Republic Federal Bank, N.A. (2)

Miami, Florida

2009

The Bank of Miami, N.A.(2)

Miami, Florida

2010

Old Harbor Bank of Florida (2)

Clearwater, Florida

2011

Anderen Financial, Inc.

Palm Harbor, Florida

2012

Enterprise Bancorp, Inc.

North Palm Beach, Florida

2013

(1)

Branch acquisition

(2)

FDIC-assisted transaction

Recent Developments

Acquisition of Enterprise Bancorp,
Inc.

On July 1, 2013, we completed our acquisition of Enterprise
Bancorp, Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of Florida, a Florida-chartered
commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the “EBI Merger Agreement”),
dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and Enterprise. 1st United acquired approximately
$159.2 million in loans, with an average yield of 5.08%, and approximately $177 million of deposits, with an average cost of 0.53%.
Total consideration for the net assets acquired was $45.6 million (or 1.22 times tangible book value, as defined by the EBI Merger
Agreement) which was comprised of $5.1 million in cash, $20.1 million in retained classified and non-performing loans, $18.3 million
in retained non-investment grade and non-performing investments, other investments and derivatives and retained $1.7 million in
OREO and other repossessed assets. The Company did not acquire any non-performing loans, OREO or non-investment grade investments
due to the acquisition of EBI.

4

The former Enterprise provides 1st United continued expansion
within the attractive northern Palm Beach County, Florida marketplace, providing opportunities for new loan and deposit growth.
In addition, of the three banking centers acquired one EBI banking center was consolidated into an existing 1st United banking
center during the third quarter 2013. In addition, one of 1st United’s banking centers was consolidated into a
banking center of the former Enterprise. The result was one net new 1st United banking center located in Jupiter, Florida. We incurred
merger related expenses of $1.7 million primarily during the third quarter of 2013 related to the integration of operations and
terminations of leases and contracts. Total goodwill recorded was $5.5 million. We integrated the EBI operations during the third
quarter of 2013.

Acquisition of Anderen Financial,
Inc.

On April 1, 2012, we completed our acquisition of Anderen
Financial, Inc., a Florida corporation and its wholly-owned subsidiary Anderen Bank, a Florida-chartered commercial bank (collectively
referred to herein as “AFI”), pursuant to the Agreement and Plan of Merger (Anderen Merger Agreement”), dated
October 24, 2011. Pursuant to the terms of the Anderen Merger Agreement, each share of AFI common stock, $0.01 par value per share,
was cancelled and automatically converted into the right to receive cash, common stock of the Company or a combination of cash
and common stock of the Company. AFI shareholders could elect to receive cash, stock, or a combination of 50% cash and 50% stock,
provided, however, that each such election was subject to mandatory allocation procedures to ensure the total consideration was
approximately 50% cash and 50% stock. The value of the per share consideration was $7.73. The total value of the consideration
paid to AFI shareholders was $38.3 million, which consisted of approximately $19.1 million in cash and 3,140,354 shares of our
common stock. Our common stock was valued at $6.09 per share with a total value of $19.1 million. We recorded goodwill of $5.6
million as a result of the merger which is not deductible for tax purposes. Total net deferred tax assets acquired were $5.7 million,
primarily related to loss carry forwards. We completed the integration of AFI in June 2012.

The acquisition of AFI is consistent with our plans to continue
to enhance its footprint and competitive position within the state of Florida. This acquisition complemented the initial expansion
into the Florida Gulf Coast markets with the acquisition of Old Harbor Bank of Florida (“Old Harbor”). We believe we
are well-positioned to deliver superior customer service, achieve stronger financial performance and enhance shareholder value
through the synergies of combined operations. All of these factors contributed to the resulting goodwill in the transaction.

The following table sets forth the carrying amount of our
investments portfolio, all of which were classified as available-for-sale as of December 31, 2013, 2012 and 2011:

December 31,

(Dollars in thousands)

2013

2012

2011

Fair value of investment in:

U.S. Treasury

$

918

$

—

$

—

Municipal securities

5,604

469

—

Residential collateralized mortgage obligations

818

3,759

7,757

Commercial mortgage-backed

4,074

—

—

Residential mortgage-backed

316,547

255,894

193,965

$

327,961

$

260,122

$

201,722

5

The following table sets forth the combined fair value and
weighted average yield of our securities available for sale portfolio as of December 31, 2013. Securities not due at a single maturity
date, primarily mortgage-backed securities, are shown separately.

Fair Value

Weighted Average Yield

(Dollars in thousands)

U.S. Treasury

One year or less

$

—

—

%

Over one year through five years

—

—

Over five through ten years

918

2.00

Over ten years

—

—

Total

$

918

2.00

%

Municipal Securities

One year or less

$

—

—

%

Over one year through five years

—

—

Over five through ten years

—

—

Over ten years

5,604

2.95

Total

$

5,604

2.95

%

Residential Collateralized Mortgage Obligations

One year or less

$

—

—

%

Over one year through five years

—

—

Over five through ten years

—

—

Over ten years

—

—

Residential collateralized mortgage obligations

818

1.08

Total

$

818

1.08

%

Commercial Mortgage-backed Securities

One year or less

$

—

—

%

Over one year through five years

—

—

Over five year through ten years

4,074

2.40

Over ten years

—

—

Total

$

4,074

2.40

%

Residential Mortgage-backed Securities

One year or less

$

—

—

%

Over one year through five years

—

—

Over five year through ten years

—

—

Over ten years

—

—

Residential mortgage-backed

316,547

2.49

Total

$

316,547

2.49

%

Total Fair Value

$

327,961

2.48

%

Total Amortized Cost

$

341,200

2.48

%

As of December 31, 2013, we did not hold any tax-exempt obligations
or instruments from issuers where the amortized cost or market value represented more than ten percent of shareholders’ equity.

6

Lending Activity

We have adopted the strategy of presenting a robust and diverse
series of lending channels and a suite of loan and loan-related products normally associated with larger banks. While this strategy
demands an investment in experienced personnel and enabling systems, we believe it distinguishes us from competing community banks.
We intend to continue to provide for the financing needs of the community we serve by offering a variety of loans, including:

▪

commercial loans, which will include collateralized loans for working capital (including inventory and receivables), business expansion (including real estate construction, acquisitions and improvements), and purchase of equipment and machinery;

▪

small business loans, including SBA lending;

▪

Export-Import Bank insured or guaranteed loans;

▪

residential real estate loans to enable borrowers to purchase, refinance, construct upon or improve real property, and home equity loans; and

▪

consumer loans, including collateralized and uncollateralized loans for financing automobiles, boats, home improvements, and personal investments.

We follow a lending policy that permits us to take prudent
risks to assist consumers and businesses in our market area. We do not originate any subprime loans. Loan-related interest rates
will vary depending on our cost of funds, the loan maturity, and the degree of risk. We are expected to meet the credit needs of
customers in the communities we serve while allowing prudent liquidity through our securities portfolio. We expect this positive,
community-oriented lending philosophy to translate into a sustainable volume of quality loans into the foreseeable future.

We also help enhance loan quality by staffing with experienced,
well-trained lending officers capable of soliciting loan business. Our lending officers, as well as our credit officers and loan
committees, recognize and appreciate the importance of exercising care and good judgment in underwriting loans, which supports
our safety and profitability goals.

At December 31, 2013, 2012, 2011, 2010 and 2009, the composition
of our loan portfolio was as follows:

December 31,

2013

2012

2011

2010

2009

(Dollars in thousands)

Amount

% of Total

Amount

% of Total

Amount

% of Total

Amount

% of Total

Amount

% of Total

Residential real estate

$

178,844

16

%

$

165,917

18

%

$

196,511

22

%

$

228,354

26

%

$

200,877

30

%

Commercial

210,264

18

%

179,498

20

%

170,183

20

%

165,203

19

%

115,781

17

%

Commercial real estate

699,851

62

%

514,574

56

%

457,276

52

%

434,855

50

%

282,783

43

%

Construction and land development

35,286

3

%

41,889

5

%

43,473

5

%

33,893

4

%

55,689

8

%

Consumer and others

9,735

1

%

11,290

1

%

12,093

1

%

13,626

1

%

11,873

2

%

Total loans

$

1,133,980

100

%

$

913,168

100

%

$

879,536

100

%

$

875,931

100

%

$

667,003

100

%

Allowance for loan losses

(9,648

)

(9,788

)

(12,836

)

(13,050

)

(13,282

)

Net deferred (fees) costs

239

220

53

(138

)

137

Net loans

$

1,124,571

$

903,600

$

866,753

$

862,743

$

653,858

7

The following charts illustrate the number of loans in our
loan portfolio as of December 31, 2013 and December 31, 2012.

Loan Portfolio as of December 31,
2013

(Dollars in thousands)

Total Loans

Total

Percent of Loan Portfolio

Percent of Total Assets

Loan Types

Residential:

First mortgages

490

$

117,830

10.39

%

6.39

%

HELOCs and equity

400

61,014

5.38

%

3.31

%

Commercial:

Secured – non-real estate

697

145,298

12.81

%

7.87

%

Secured – real estate

91

57,052

5.03

%

3.09

%

Unsecured

57

7,914

0.70

%

0.43

%

Commercial Real Estate:

Owner occupied

268

209,467

18.47

%

11.35

%

Non-owner occupied

328

451,982

39.85

%

24.50

%

Multi-family

72

38,402

3.39

%

2.08

%

Construction and Land Development:

Construction

12

7,366

0.65

%

0.40

%

Improved land

24

16,538

1.46

%

0.90

%

Unimproved land

19

11,382

1.00

%

0.62

%

Consumer and other

178

9,735

0.87

%

0.53

%

Total December 31, 2013

2,636

$

1,133,980

100.00

%

61.47

%

Loan Portfolio as of December 31,
2012

(Dollars in thousands)

Total Loans

Total

Percent of Loan Portfolio

Percent of Total Assets

Loan Types

Residential:

First mortgages

461

$

109,562

12.00

%

6.99

%

HELOCs and equity

315

56,355

6.17

%

3.60

%

Commercial:

Secured – non-real estate

669

127,514

13.96

%

8.14

%

Secured – real estate

86

43,613

4.78

%

2.78

%

Unsecured

43

8,371

0.92

%

0.53

%

Commercial Real Estate:

Owner occupied

233

187,007

20.48

%

11.94

%

Non-owner occupied

268

290,858

31.85

%

18.56

%

Multi-family

71

36,709

4.02

%

2.34

%

Construction and Land Development:

Construction

6

3,481

0.38

%

0.22

%

Improved land

34

20,117

2.20

%

1.28

%

Unimproved land

25

18,291

2.00

%

1.17

%

Consumer and other

196

11,290

1.24

%

0.72

%

Total December 31, 2012

2,407

$

913,168

100.00

%

58.27

%

8

Of the loan portfolio as of December 31, 2013, 707 loans
with a carrying value of $246.7 million (21.8%) are subject to loss sharing agreements with the FDIC ( “Loss Sharing Agreements”)
as compared to 892 loans with a carrying value of $327.1 million (35.8%) which were subject to the Loss Sharing Agreements at December
31, 2012. In addition, at December 31, 2013, included in commercial non-real estate secured loans are approximately $12.6 million
in Export -Import Bank (“EXIM”) loans which have either insurance or a guarantee of between 90% and 100% from the Export-Import
Bank of the United States.

At December 31, 2013, our loan interest rate sensitivity
was as follows:

Maturity and/or Re-pricing Period

(Dollars in thousands)

Total

<1 year Fixed

<1 year Adjustable

1 to 5 years Fixed Rate

1 to 5 years Adjustable Rate

>5 years Fixed Rate

>5 years Adjustable Rate

Commercial

$

210,264

$

27,610

$

93,051

$

31,951

$

14,300

$

42,002

$

1,350

Residential real estate

117,830

5,362

53,347

9,688

14,924

34,038

471

Commercial real estate

699,851

16,558

138,728

178,499

147,206

209,395

9,465

Construction land development

35,286

1,545

24,588

7,373

148

953

679

Home equity lines of credit

61,014

28

55,511

4,242

91

1,142

—

Consumer and other

9,735

909

6,916

1,866

—

44

—

Total loans

$

1,133,980

$

52,012

$

372,141

$

233,619

$

176,669

$

287,574

$

11,965

As shown in the table above, a majority of our loan portfolio
has either adjustable rates (approximately 49% of the loan portfolio) or shorter maturity terms.

Real Estate Loans

Real Estate Loans – Commercial

Through our lending division, our commercial real estate
loan portfolio includes loans secured by office buildings, warehouses, retail stores and other properties, which are primarily
located in or near our markets. Commercial real estate loans are generally originated in amounts up to 70% to 80% of the appraised
value of the property securing the loan. In determining whether to originate or purchase multi-family or commercial real estate
loans, we consider such factors as the financial condition of the borrower and the debt service coverage provided by the property,
business enterprise, related borrowing entities, and guarantors.

Appraisals on properties securing commercial real estate
loans originated by us are performed by an independent appraiser at the time the loan is made and are reviewed internally by our
Credit and Risk Management division. In addition, our underwriting procedures generally require verification of the borrower’s
credit history, income and financial condition, banking relationships, and income and expenses for the property. We generally obtain
personal guarantees for our commercial real estate loans.

Real Estate Loans – Residential

We originate a mix of fixed rate and adjustable rate residential
mortgage loans. Lending officers contact local builders, realtors, government officials, community leaders, and other groups to
determine the residential credit needs of the communities we serve.

We offer adjustable rate mortgages, which are commonly referred
to as ARMs, and maintain these ARMs in our portfolio or sell the ARMs in the secondary market. We also originate fixed rate loans
from within our primary service area. The majority of fixed rate loans are either held in portfolio or sold in the secondary mortgage
market.

Our ARMs generally have interest rates that adjust annually
at a margin over the weekly average yield on U.S. Treasury securities published by the Federal Reserve, adjusted to a constant
maturity of one year. The maximum interest rate adjustment of our ARMs are generally 2% annually and 6% over the life of the loan,
above or below the initial rate on the loan.

9

We embrace written, non-discriminatory underwriting standards
for use in the underwriting and review of every loan considered for origination or purchase. Our board of directors reviews and
approves these underwriting standards annually.

Our underwriting standards for residential mortgage loans
generally conform to standards established by Fannie Mae and Freddie Mac. Our underwriters and secondary market buyers obtain or
review each loan application to determine the borrower’s ability to repay, and confirm significant information through the
use of credit reports, financial statements, employment and other verifications.

When originating a residential real estate mortgage loan,
we obtain a new appraisal of the property from an independent third party to determine the adequacy of the collateral, and the
appraisal will be reviewed by one of the underwriters. Borrowers are required to obtain casualty insurance and, if applicable,
flood insurance in amounts at least equal to the outstanding loan balance or the maximum amount allowed by law.

We require that a survey be conducted and title insurance
be obtained, insuring the priority of our mortgage lien. Underwriters review all loans to ensure that guidelines are met or that
waivers are obtained in limited situations where offsetting factors exist.

Through our lending divisions, we originate real estate construction
loans to individuals for the construction of their residences, to businesses and business owners primarily for owner-occupied commercial
real estate, and to homeowners’ associations for general repair and/or improvements to the properties. Our construction loans
typically have terms up to 18 months, and generally, the maximum loan-to-value ratio at origination is 80%. The loan-to-cost maximum
ratio is generally 70% to 80% for residential and commercial construction and up to 100% for homeowners’ associations.

We provide construction loans on commercial real estate projects
secured by industrial properties, office buildings or other property. We emphasize projects that are owner-occupied. Following
the construction phase, loans will be converted to permanent financing.

Land Loans

Our portfolio includes exposure to land development, both
residential and commercial. Typically, borrowers have or had preliminary plans for development and were waiting for final plans
to be completed to submit for construction financing.

The following chart illustrates the composition of our construction
and land development loan portfolio in relation to total loans as December 31, 2013, 2012 and 2011.

December 31,

2013

2012

2011

(Dollars in thousands)

Balance

% of Loans

Balance

% of Loans

Balance

% of Loans

Construction

Residential

$

272

0.02

%

$

2,721

0.30

%

$

3,135

0.36

%

Residential Spec

1,423

0.13

%

—

—

%

1,492

0.17

%

Commercial

5,671

0.50

%

760

0.08

%

263

0.03

%

Commercial Spec

—

0.00

%

—

—

%

3,283

0.37

%

Land Development

Residential

5,377

0.47

%

4,798

0.53

%

1,918

0.22

%

Residential Spec

5,223

0.45

%

11,829

1.28

%

18,473

2.11

%

Commercial

6,044

0.53

%

8,538

0.93

%

1,048

0.12

%

Commercial Spec

11,276

0.99

%

13,243

1.45

%

13,861

1.57

%

Total

$

35,286

3.09

%

$

41,889

4.57

%

$

43,473

4.95

%

10

Approximately $6.5 million or 18.4% of the construction and
land development loan portfolio at December 31, 2013 is covered by the Loss Sharing Agreements. This compares to $8.4 million or
20.1% of the construction and land development loan portfolio at December 31, 2012 covered by the Loss Sharing Agreements.

Consumer Loans

We originate consumer loans bearing both fixed and prime-based
variable interest rates. We originate our loans directly through our banking centers, business bankers and residential lenders.
Residential real estate secured loans are originated through our lenders who are licensed to make these loans.

We focus our consumer lending on the origination of direct
first or second mortgage loans and home equity loans (secured by a junior lien on residential real property), and home improvement
loans. These loans are typically based on a maximum 60% to 80% loan-to-value ratio. Second mortgage and home improvement loans
generally will originate on either a line of credit or a fixed term basis ranging from 5 to 30 years. We also extend personal loans,
which may be secured by various forms of collateral, both real and personal, or to a minimal extent, on an unsecured basis.

Commercial Loans

We focus on the commercial loan market comprised of
small to medium-sized businesses with combined borrowing needs generally up to $10.0 million. These businesses include
professional associations (physicians, law firms, and accountants), medical services, retail trade, construction,
transportation, wholesale trade, manufacturing, and tourism-related service industries.

Our commercial loans are primarily derived from our market
area and underwritten on the basis of the borrowers’ ability to service such debt from recurring income. As a general practice,
we will take as collateral a security interest in any available real estate, equipment, or other assets, although such loans may
also be made on an uncollateralized, but guaranteed, basis. Short-term assets primarily secure collateralized working capital loans,
whereas long-term assets primarily collateralize term loans.

In certain situations, we use various loan programs sponsored
by the SBA. Properly utilized, SBA loans can help to reduce our loan portfolio risk and can generate non-interest income.

As part of the acquisition of Republic Federal Bank, N.A.
(“Republic”), we obtained an EXIM lending operation. Our EXIM lending operation makes loans to companies that export
U.S. goods and services to international markets and makes loans to foreign companies to facilitate the purchase of U.S. goods.
Loans made under this program are insured or guaranteed between 90% and 100% by the Export Import Bank of the United States. At
December 31, 2013, we had approximately $12.6 million in EXIM loans.

Loan Administration and Underwriting

Through our Credit and Risk Management division, we use our
loan origination underwriting procedures to assess both the borrower’s ability to make principal and interest payments and
the value of the collateral securing the loan. Our Credit and Risk Management division is responsible for a battery of management
and board risk management monitoring and for reporting to various management and board committees. To manage risk, we have adopted
written loan policies and procedures, and our loan portfolio is administered under a defined process. That process includes guidelines
for loan underwriting standards and risk assessment, procedures for loan approvals, loan grading, ongoing identification and management
of credit deterioration and portfolio reviews to assess loss exposure and to test compliance with our credit policies and procedures.

Our Board of Directors has approved set levels of lending
authority to the Management Loan Committee, as well as limited authority for certain officers based on the loan type and amount.
All use of delegated loan authorities is preceded by a determination of the worthiness of the loan request by the Credit and Risk
Management division. Typically, the Management Loan Committee reviews loan requests and if a particular request exceeds the loan
authority limits delegated to this committee, these requests, if approved, are presented to 1st United’s Board
Loan Committee for final approval.

Before and after loan closing, our loan operations personnel
review all loans for adequacy of documentation and compliance with regulatory requirements. Our loan review personnel analyze loans
over certain size thresholds, problem loans and loans with certain loan quality ratings to ensure that appropriate credit risk
ratings are assigned and ultimately to assist in determining the adequacy of the allowance for loan losses.

11

Loan Quality

Management seeks to maintain a high quality portfolio of
loans through sound underwriting and lending practices. As of December 31, 2013 and 2012, approximately 86% and 84%, respectively,
of the total loan portfolio was collateralized by commercial and residential real estate mortgages.

Unlike residential mortgage loans, which generally are made
on the basis of the borrower’s ability to repay from employment and other income and which are collateralized by real property
whose value tends to be more readily ascertainable, non-real estate secured commercial loans typically are underwritten on the
basis of the borrower’s ability to make repayment from the cash flow of its business activities and generally are collateralized
by a variety of business assets, such as accounts receivable, equipment and inventory. As a result, the availability of funds for
the repayment of commercial loans may be substantially dependent on the success of the business itself, which is subject to adverse
conditions in the economy. Commercial loans are generally repaid from operational earnings, collection of rent or conversion of
assets. Commercial loans also entail certain additional risks since they usually involve large loan balances to single borrowers
or a related group of borrowers, resulting in a more concentrated loan portfolio. Further, the collateral underlying the loans
may depreciate over time, cannot be appraised with as much precision as residential real estate, and may fluctuate in value based
on the success of the business.

Loan concentrations are defined as loans to borrowers engaged
in similar business-related activities, which would cause them to be similarly impacted by economic or other conditions. We, on
a routine basis, monitor these concentrations in order to consider adjustments in our lending practices to reflect economic conditions,
loan-to-deposit ratios, and industry trends. As of December 31, 2013 and 2012, there was no concentration of loans within
any portfolio category to any group of borrowers engaged in similar activities or in a similar business (other than noted below)
that exceeded 10.0% of total loans, except that as of such dates loans collateralized with mortgages on real estate represented
86% and 84%, respectively, of the loan portfolio and were to borrowers in varying activities, businesses and geographic markets.

Generally, interest on loans accrues and is credited to income
based upon the principal balance outstanding. It is management’s policy to discontinue the accrual of interest income and
classify a loan as non-accrual when principal or interest is past due 90 days or more unless, in the determination of management,
the principal and interest on the loan are well collateralized and in the process of collection. Consumer installment loans are
generally charged-off after 90 days of delinquency unless adequately collateralized and in the process of collection. Loans are
not returned to accrual status until principal and interest payments are brought current and future payments appear reasonably
certain. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.

Real estate acquired by us as a result of foreclosure or
by deed in lieu of foreclosure is classified as other real estate owned (“OREO”). OREO properties are recorded at the
lower of cost or fair value less estimated selling costs, and the estimated loss, if any, is charged to the allowance for credit
losses at the time it is transferred to OREO. Further write-downs in OREO are recorded at the time management believes additional
deterioration in value has occurred and are charged to non-interest expense. At December 31, 2013, we had $18.6 million of OREO
property of which $10.8 million were a result of the Old Harbor, The Bank of Miami, N.A. (“TBOM”) and Republic acquisitions
and are covered under their respective Loss Sharing Agreements. We had $19.5 million of OREO property as of December 31, 2012,
of which $13.2 million were a result of the Old Harbor, TBOM and Republic acquisitions and covered under their respective Loss
Sharing Agreements.

The following is a summary of other real estate owned as
of December 31, 2013 and 2012:

2013

2012

(Dollars in thousands)

Assets Not Subject to Loss Sharing Agreements

Assets Subject to Loss Sharing Agreements

Total

Assets Not Subject to Loss Sharing Agreements

Assets Subject to Loss
Sharing Agreements

Total

Commercial real estate

$

5,761

$

8,979

$

14,740

$

5,708

$

10,372

$

16,080

Residential real estate

2,002

1,838

3,840

646

2,803

3,449

Total

$

7,763

$

10,817

$

18,580

$

6,354

$

13,175

$

19,529

12

As of December 31, 2013, we had approximately $1.1 million
of the total of $18.6 million in other real estate under contract to sell at approximately the carrying value of the asset.

We have identified certain assets as risk elements. These
assets include non-accruing loans, foreclosed real estate, loans that are contractually past due 90 days or more as to principal
or interest payments and still accruing, and troubled debt restructurings. These assets present more than the normal risk that
we will be unable to eventually collect or realize their full carrying value.

Our risk elements at December 31, 2013, 2012, 2011, 2010
and 2009 were as follows:

Total non-performing assets and performing troubled debt restructured loans to total assets

5.55

%

3.54

%

1.80

%

Included in non-accrual loans at December 31, 2013 are
$2.8 million purchase credit impaired loans for which cash flows could not be reasonably estimated with $2.7 million of these
loans subject to Loss Sharing Agreements. Additionally, included in non-accrual loans at December 31, 2013 and 2012 are $4.2
million and $2.2 million respectively, of loans performing in accordance with their contractual terms but which the Company
has placed on non-accrual due to identified risks within the credits. Of the nonperforming assets and performing troubled
debt restructuring at December 31, 2013, $19.0 million were acquired in the Old Harbor, TBOM and Republic transactions and
are all covered under the Loss Sharing Agreements as compared to $25.0 million at December 31, 2012 for a decrease of $6.0
million. These assets were initially recorded at fair value and as such we do not expect to incur any significant future
losses on these assets.

At December 31, 2013, we had approximately $1.1 million in
other real estate owned approved for sale and pending closing for which no additional losses are expected.

During the year ended December 31, 2013, for nonperforming
assets not subject to Loss Sharing Agreements, we had approximately $895,000 in non-accrual loans which were charged-off, $7.1
million were paid off or transferred to OREO, $7.2 million were added to non-accrual and $29,000 were returned to accrual status.

14

Past due loans, categorized by loans subject to Loss Sharing
Agreements and those not subject to Loss Sharing Agreements, at December 31, 2013 and 2012 were as follows:

December 31, 2013

Accruing 30 - 59

Accruing 60-89

Non-Accrual/Accrual 90 days and over

Total

(Dollars in thousands)

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Residential real estate

$

333

$

1,085

$

162

$

24

$

3,233

$

539

$

3,728

$

1,648

Commercial

—

461

—

—

455

1,518

455

1,979

Commercial real estate

—

—

—

1,737

3,045

3,297

3,045

5,034

Construction and land development

—

—

—

—

35

3,688

35

3,688

Consumer and other

—

34

—

—

—

26

—

60

Total December 31, 2013

$

333

$

1,580

$

162

$

1,761

$

6,768

$

9,068

$

7,263

$

12,409

December 31, 2012

Accruing 30 - 59

Accruing 60-89

Non-Accrual/accrual and 90 days and over

Total

(Dollars in thousands)

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Residential real estate

$

1,013

$

292

$

1,207

$

—

$

4,188

$

2,815

$

6,408

$

3,107

Commercial

—

200

—

94

571

805

571

1,099

Commercial real estate

581

1,873

—

1,707

6,393

4,887

6,974

8,467

Construction and land development

—

2,767

—

—

288

3,440

288

6,207

Consumer and other

—

99

—

—

—

29

—

128

Total December 31, 2012

$

1,594

$

5,231

$

1,207

$

1,801

$

11,440

$

11,976

$

14,241

$

19,008

Total past due loans decreased $13.6 million from $33.2 million
at December 31, 2012 to $19.7 million at December 31, 2013. Past due loans subject to Loss Sharing Agreements decreased by $6.9
from $14.2 million at December 31, 2012 to $7.3 million at December 31, 2013. The decrease was due to a reduction in loans past
due 30-89 days of approximately $2.3 million and a reduction in loans past due greater than 90 days and nonaccrual of $4.7 million.
Past due loans not subject to Loss Sharing Agreements decreased by $6.6 million from $19.0 million at December 31, 2012 to $12.4
million at December 31, 2013. The decrease was due to a reduction of loans past due 30-59 days of $3.7 million and nonaccrual
loans over 90 days past due of $2.9 million due to resolutions during the year ended December 31, 2013. Loans not subject
to Loss Sharing Agreements and past due 30-59 days at December 31, 2012 included $4.8 million in loans for which a renewal was
pending and finalized and closed in early January 2013.

Modifications of terms for our loans and their inclusion
as troubled debt restructurings are based on individual facts and circumstances. Loan modifications that are included as troubled
debt restructurings may involve a reduction of the stated interest rate on the loan, extension of the maturity date at a stated
rate of interest lower than the current market rate for new debt with similar risk, deferral of principal payments and/or forgiveness
of principal, regardless of the period of the modification. Generally, we will allow interest rate reductions for a period of less
than two years after which the loan reverts back to the contractual interest rate. Each of the loans included as troubled debt
restructurings at December 31, 2013 had either an interest rate modification ranging from 6 months to 2 years before reverting
back to the original interest rate and/or a deferral of principal payments which can range from 6 to 12 months before reverting
back to an amortizing loan. All of the loans were modified due to financial stress of the borrower. The following is a summary
of our troubled debt restructurings as of December 31, 2013 and 2012, respectively, which are performing in accordance with their
modification agreements.

15

(Dollars in thousands)

December 31, 2013

December 31, 2012

Residential real estate

$

834

$

605

Commercial real estate

15,341

17,315

Construction and land development

143

2,654

Commercial

2,328

3,699

Total

$

18,646

$

24,273

The decrease of $5.6 million in performing restructured loans
to $18.6 million at December 31, 2013 from $24.3 million at December 31, 2012 was due to new performing modifications of $1.8 million
offset by $3.8 million in repayments and resolutions of modified loans and $3.6 million in loans that defaulted under the terms
of their modification agreement during the year and are included in nonaccrual loans at December 31, 2013

At December 31, 2013, there were 18 loans which were
troubled debt restructured loans with a carrying amount of $7.5 million and specific reserves of $608,000 that were
non-accrual and included in non-accrual loans. There were 12 loans classified as troubled debt restructured loans with a
carrying value of $5.7 million and specific reserves of $66,000 that were non-accrual and included in non-accrual loans at
December 31, 2012. Loans retain their accrual status at their time of modification. As a result, if the loan is on
non-accrual at the time that it is modified, it stays on non-accrual, and if a loan is accruing at the time of modification,
it generally stays on accrual. A loan on non-accrual will be individually evaluated based on sustained adherence to the terms
of the modification agreement prior to being placed on accrual status. Troubled debt restructurings are considered impaired.
The average yield on the loans classified as troubled debt restructurings was 4.38% and 4.76% at December 31, 2013 and 2012,
respectively.

During the year ended December 31, 2013, we had approximately
$6.6 million in loans on which we lowered the interest rate prior to maturity to competitively retain a loan. During the year ended
December 31, 2012, we had approximately $11.8 million in loans on which we lowered the interest rate prior to maturity to competitively
retain the loan. Due to the borrowers’ significant deposit balances and/or the overall quality of the loans, these loans
were not included in troubled debt restructurings for the years ended December 31, 2012 and 2011, respectively. In addition, each
of these borrowers was not considered to be in financial distress and the modified terms matched current market terms for borrowers
with similar risk characteristics. We had no other loans where we extended the maturity or forgave principal that were not already
included in troubled debt restructurings or otherwise impaired.

Impaired Loans

The following table presents loans individually evaluated
for impairment by class of loan as of December 31, 2013:

Recorded Investment in Impaired Loans

With Allowance

With No Allowance

December 31, 2013

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

(Dollars in thousands)

Recorded Investment

Allowance for Loan Losses Allocated

Recorded Investment

Allowance for Loan Losses Allocated

Recorded Investment

Recorded Investment

Residential real estate

$

1,127

$

230

$

823

$

230

$

1,170

$

447

Commercial

409

105

1,537

730

—

1,991

Commercial real estate

603

99

5,332

314

1,374

12,316

Construction and land development

—

—

527

271

—

3,303

Consumer and other

—

—

—

—

—

—

Total December 31, 2013

$

2,139

$

434

$

8,219

$

1,545

$

2,544

$

18,057

16

The following table presents loans individually evaluated
for impairment by class of loan as of December 31, 2012:

Recorded Investment in Impaired Loans

With Allowance

With No Allowance

December 31, 2012

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

(Dollars in thousands)

Recorded Investment

Allowance for Loan Losses Allocated

Recorded Investment

Allowance for Loan Losses Allocated

Recorded Investment

Recorded Investment

Residential Real Estate

$

1,454

$

395

$

549

$

79

$

1,065

$

2,757

Commercial

473

122

1,453

388

—

2,242

Commercial Real Estate

3,880

506

7,220

622

648

12,258

Construction and Land Development

—

—

2,654

1,002

—

3,440

Consumer and other

—

—

—

—

—

—

Total December 31, 2012

$

5,807

$

1,023

$

11,876

$

2,091

$

1,713

$

20,697

Overall, impaired loans decreased from $40.1 million at December
31, 2012 to $31.0 million at December 31, 2013, primarily due to resolutions, including sales, payoffs and transfers to other real
estate owned, during the year ended December 31, 2013. Impaired loans subject to Loss Sharing Agreements decreased by $2.8 million
due to our evaluation of the portfolio. Impaired loans not subject to Loss Sharing Agreement decreased by $6.3 million from $32.6
million at December 31, 2012 to $26.3 million at December 31, 2013, primarily due to transfers to other real estate owned and resolutions,
including sales and payoffs of loans during the year ended December 31, 2013.

During the years ended December 31, 2013, 2012, 2011, 2010,
and 2009, interest income not recognized on non-accrual loans (but would have been recognized if these loans were current) was
approximately $970,000, $1.3 million, $1.5 million, $858,000 and $436,000, respectively. Excluded from impaired loans at December
31, 2013 are $2.7 million of purchase credit impaired loans subject to Loss Sharing Agreements in which cash flows could not be
reasonably estimated which are included in non-accrual loans.

Allowance for Loan Losses

At December 31, 2013, the allowance for loan losses was $9.6
million or 0.85% of total loans. At December 31, 2012, the allowance for loan losses was $9.8 million or 1.07% of total loans.
Included within total loans was $149.4 million in loans acquired from EBI on July 1, 2013 which are recorded at fair value and
for which minimal allowance was allocated at December 31, 2013. Excluding these loans, the allowance for loan losses was approximately
0.98% of total loans.

The reduction in the allowance for loan losses at
December 31, 2013 as compared to December 31, 2012 was approximately $140,000. The reduction was due to lower specific
reserves of $1.1 million at December 31, 2013 as compared to December 31, 2012 due to lower impaired loans and
classified assets year over year. The reduction in the specific portion of the allowance for loan losses was offset by an
increase in the general portion of the allowance for loan losses of $1.0 million year over year. At December 31, 2012,
we had $11.9 million of impaired loans not covered by Loss Sharing Agreements with an allocated allowance for loan loss of
$2.1 million, as compared to $8.2 million of impaired loans not covered by Loss Sharing Agreements with an allocated
allowance of $1.5 million at December 31, 2013. In addition, overall loans graded special mention not covered by Loss Sharing
Agreements decreased by $20.0 million (or 55.9%) from December 31, 2012 to December 31, 2013 which had a positive impact
on the general portion of the allowance for loan losses.

In originating loans, we recognize that credit losses will
be experienced and the risk of loss will vary with, among other things: general economic conditions; the type of loan being made;
the creditworthiness of the borrower and guarantors over the term of the loan; insurance; whether the loan is covered by a Loss
Sharing Agreement; and, in the case of a collateralized loan, the quality of the collateral for such a loan. The allowance for
loan losses represents our estimate of the amount necessary to provide for probable incurred credit losses in the loan portfolio.
In making this determination, we analyze the ultimate collectability of the loans in our portfolio, feedback provided by internal
loan staff, the independent loan review function and information provided by examinations performed by regulatory agencies.

17

The allowance for loan losses is evaluated at the portfolio
segment level using the same methodology for each segment. The historical net losses for a rolling two-year period is the basis
for the general reserve for each segment which is adjusted for each of the same qualitative factors (i.e., nature and volume of
portfolio, economic and business conditions, classification, past due and non-accrual trends) evaluated by each individual segment.
Impaired loans and related specific reserves for each of the segments are also evaluated using the same methodology for each segment.
The qualitative factors added approximately 7 and 11 basis points to the general reserve of the allowance for loan losses at December
31, 2013 and 2012, respectively.

A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower
is experiencing financial difficulties, are considered troubled debt restructurings and generally classified as impaired.

Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays (loan payments made within 90 days of the due date) and payment shortfalls (which
are tracked as past due amounts) generally are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, the borrower’s
and guarantor’s financial condition and the amount of the shortfall in relation to the principal and interest owed.

Charge-offs of loans are made by portfolio segment at the
time that the collection of the full principal, in management’s judgment, is doubtful. This methodology for determining charge-offs
is consistently applied to each segment.

On a quarterly basis, management reviews the adequacy of
the allowance for loan losses. Commercial credits are graded by risk management and the loan review function validates the assigned
credit risk grades. In the event that a loan is downgraded, it is included in the allowance analysis at the lower grade. To establish
the appropriate level of the allowance, we review and classify loans (including all impaired and non-performing loans) as to potential
loss exposure.

Our analysis of the allowance for loan losses consists of
three components: (i) specific credit allocation established for expected losses resulting from analysis developed through specific
credit allocations on individual loans for which the recorded investment in the loan exceeds the fair value; (ii) general portfolio
allocation based on historical loan loss experience for each loan category; and (iii) qualitative reserves based on general economic
conditions as well as specific economic factors in the markets in which we operate.

The specific credit allocation component of the allowance
for loan losses is based on a regular analysis of loans where the loan is determined to be impaired as determined by management.
The amount of impairment, if any, is determined based on either the present value of expected future cash flows discounted at the
loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of
the underlying collateral less cost of sale. Third party appraisals are used to determine the fair value of underlying collateral.
At a minimum, a new appraisal is obtained annually for all impaired loans based on an “as is” value. Generally no adjustments,
other than a reduction for estimated disposal costs, are made by the Company to third party appraisals to determine the fair value
of the assets. The impact on the allowance for loan losses of new appraisals are reflected in the period the appraisal is received.
A loan may also be classified as substandard and not be classified as impaired by management. A loan may be classified as substandard
by management if, for example, the primary source of repayment is insufficient, the financial condition of the borrower and/or
guarantors has deteriorated or there are chronic delinquencies. The following is a summary of our loan classifications at December
31, 2013 and 2012:

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

(Dollars in thousands)

Total

Pass

Special Mention

Substandard

Pass

Special Mention

Substandard

December 31, 2013

Residential real estate

$

178,844

$

63,712

$

1,152

$

3,395

$

99,259

$

4,661

$

6,665

Commercial

210,264

26,799

319

455

176,434

2,647

3,610

Commercial real estate

699,851

133,219

8,047

3,045

537,439

5,324

12,777

Construction and land development:

35,286

6,470

—

35

22,037

2,656

4,088

Consumer and other

9,735

2

—

—

9,135

480

118

Total December 31, 2013

$

1,133,980

$

230,202

$

9,518

$

6,930

$

844,304

$

15,768

$

27,258

18

Loans Subject to Loss Sharing Agreements

Loans Not Subject to Loss Sharing Agreements

(Dollars in thousands)

Total

Pass

Special Mention

Substandard

Pass

Special Mention

Substandard

December 31, 2012

Residential Real Estate

$

165,917

$

80,215

$

2,578

$

4,188

$

65,484

$

7,927

$

5,525

Commercial

179,498

32,080

405

540

135,488

6,516

4,469

Commercial Real Estate

514,574

182,009

10,264

6,393

284,184

17,563

14,161

Construction and Land Development:

41,889

7,921

—

505

23,944

3,138

6,381

Consumer and other

11,290

11

—

—

10,552

584

143

Total December 31, 2012

$

913,168

$

302,236

$

13,247

$

11,626

$

519,652

$

35,728

$

30,679

Substandard loans totaled $34.2 million at December 31, 2013
(of which $6.9 million were subject to the Loss Sharing Agreements) and $42.3 million at December 31, 2012 (of which $11.6 million
were subject to the Loss Sharing Agreements). The decrease of $8.0 million since December 31, 2012 was primarily due to the resolution,
including charge-offs, sales, payoffs and transfers to other real estate owned. Of the decrease of $8 million, $3.4 million is
related to loans not covered under loss sharing agreements. We regularly evaluate the classifications of loans and recommend either
upgrades or downgrades to credits as events or circumstances warrant. In addition, at December 31, 2013, we had $31.0 million (or
2.7% of total loans) in loans we classified as impaired. This compares to $40.1 million or 4.4% of total loans at December 31,
2012. The decrease was primarily due to the resolution, including sales, payoffs and transfers to other real estate owned, of loans
during the year. At December 31, 2013 and December 31, 2012, the specific credit allocation included in the allowance for loan
losses for loans impaired was approximately $2.0 million and $3.1 million, respectively. The specific credit allocation for impaired
loans is adjusted based on appraisals obtained at least annually. All loans classified as substandard that are collateralized by
real estate are also re-appraised at a minimum on an annual basis.

We also have loans classified as Special Mention.
We classify loans as Special Mention if there are declining trends in the borrower’s business, questions
regarding condition or value of the collateral, or other weaknesses. At December 31, 2013, we had $25.3 million (2.2% of
outstanding loans) of loans classified as Special Mention, which included $9.5 million in loans subject to Loss Sharing
Agreements, which compares to $49.0 million (5.4% of outstanding loans) of which $13.2 million were subject to Loss Sharing
Agreements, at December 31, 2012. Special Mention loans not subject to Loss Sharing Agreements decreased by $19.9 million to
$15.8 million at December 31, 2013, as compared to $35.7 million at December 31, 2012. The decrease is attributable to
the resolution, including sales, payoffs and transfers to other real estate owned, of loans and ongoing reviews of loans
classified as special mention. If there is further deterioration on these loans, they may be classified substandard in the
future, and depending on whether the loan is considered impaired, a specific credit allocation may be needed resulting in
increased provisions for loan losses.

We determine the general portfolio allocation component of
the allowance for loan losses statistically using a loss analysis that examines historical loan loss experience adjusted for current
environmental factors. We perform the loss analysis quarterly and update loss factors regularly based on actual experience. The
general portfolio allocation element of the allowance for loan losses also includes consideration of the amounts necessary for
concentrations and changes in portfolio mix and volume.

We base the allowance for loan losses on estimates and ultimate
realized losses may vary from current estimates. We review these estimates quarterly, and as adjustments, either positive or negative,
become necessary, we make a corresponding increase or decrease in the provision for loan losses. The methodology used to determine
the adequacy of the allowance for loan losses is consistent with prior years.

Management remains watchful of credit quality issues. Should
the economic climate deteriorate from current levels, borrowers may experience difficulty repaying loans. As a result, the level
of non-performing loans, charge-offs and delinquencies could rise and require further increases in loan loss provisions.

During the years ended December 31, 2013 and 2012, we recorded
$3.5 million and $6.4 million, respectively, in provision for loan losses primarily as a result of charge-offs during the period,
changes within classified and impaired loans and new appraisals on the underlying collateral of impaired loans.

19

During the years ended December 31, 2013, 2012, 2011, 2010,
and 2009, the activity in our allowance for loan losses was as follows:

Year ended December 31,

(Dollars in thousands)

2013

2012

2011

2010

2009

Balance at beginning of period

$

9,788

$

12,836

$

13,050

$

13,282

$

5,799

Provision charged to expense

3,475

6,350

7,000

13,520

13,240

Charge-offs

(3,810

)

(9,826

)

(7,366

)

(13,933

)

(5,788

)

Recoveries

195

428

152

181

31

Balance at end of period

$

9,648

$

9,788

$

12,836

$

13,050

$

13,282

Net charge-offs /average total loans

0.35

%

1.01

%

0.87

%

2.01

%

1.14

%

The following table reflects the allowance allocation per
loan category and percent of loans in each category to total loans for the periods indicated:

As of December 31, 2013:

(Dollars in thousands)

Commercial

Residential Real Estate

Commercial Real Estate

Construction and Land Development

Consumer and Other

Total

Specific Reserves:

Impaired loans

$

835

$

460

$

413

$

271

$

—

$

1,979

Purchase credit impaired loans

464

269

278

—

—

1,011

Total specific reserves

1,299

729

691

271

—

2,990

General reserves

1,785

1,708

2,859

214

92

6,658

Total

$

3,084

$

2,437

$

3,550

$

485

$

92

$

9,648

Total Loans

$

210,264

$

178,844

$

699,851

$

35,286

$

9,735

$

1,133,980

Allowance as percent of loans
per category as of
December 31, 2013

1.47

%

1.36

%

0.51

%

1.37

%

0.95

%

0.85

%

As of December 31, 2012:

(Dollars in thousands)

Commercial

Residential Real Estate

Commercial Real Estate

Construction and Land Development

Consumer and Other

Total

Specific Reserves:

Impaired loans

$

510

$

474

$

1,128

$

1,002

$

—

$

3,114

Purchase credit impaired loans

355

359

306

—

—

1,020

Total specific reserves

865

833

1,434

1,002

—

4,134

General reserves

1,870

1,036

1,964

743

41

5,654

Total

$

2,735

$

1,869

$

3,398

$

1,745

$

41

$

9,788

Total Loans

$

179,498

$

165,917

$

514,574

$

41,889

$

11,290

$

913,168

Allowance as percent of loans per category as of December 31, 2012

1.52

%

1.13

%

0.66

%

4.13

%

0.36

%

1.07

%

20

As of December 31, 2011:

(Dollars in thousands)

Commercial

Residential Real Estate

Commercial Real Estate

Construction and Land Development

Consumer and Other

Total

Specific Reserves:

Impaired loans

$

1,719

$

188

$

2,563

$

892

$

—

$

5,362

Purchase credit impaired loans

—

110

542

—

—

652

Total specific reserves

1,719

298

3,105

892

—

6,014

General reserves

1,392

1,647

2,197

1,517

69

6,822

Total

$

3,111

$

1,945

$

5,302

$

2,409

$

69

$

12,836

Total Loans

$

170,183

$

196,511

$

457,276

$

43,473

$

12,093

$

879,536

Allowance as percent of loans per category as of December 31, 2011

1.83

%

0.99

%

1.16

%

5.54

%

0.57

%

1.46

%

As of December 31, 2010:

(Dollars in thousands)

Commercial

Residential Real Estate

Commercial Real Estate

Construction and Land Development

Consumer and Other

Total

Specific Reserves:

Impaired loans

$

260

$

1,781

$

1,497

$

822

$

108

$

4,468

Purchase credit impaired loans

—

89

215

—

—

304

Total specific reserves

260

1,870

1,712

822

108

4,772

General reserves

3,572

1,156

2,433

1,073

44

8,278

Total

$

3,832

$

3,026

$

4,145

$

1,895

$

152

$

13,050

Total Loans

$

165,203

$

228,354

$

434,855

$

33,893

$

13,626

$

875,931

Allowance as percent of loans per category as of December 31, 2010

2.32

%

1.33

%

0.95

%

5.59

%

1.12

%

1.49

%

As of December 31, 2009:

(Dollars in thousands)

Amount

% of loans in each category

Commercial loans

$

3,415

17

%

Real estate loans

8,973

81

%

Consumer loans

232

2

%

Other

662

—

Total

$

13,282

100

%

The allowance for loan losses for construction and land development
decreased from $1.7 million at December 31, 2012 to $485,000 at December 31, 2013. The decrease in the general reserves for construction
and land development loans from $743,000 at December 31, 2012 to $214,000 at December 31, 2013 primarily related to the improvement
in historical loss factors over the previous period and a decrease in these types of loans year over year. The decrease in the
specific portion of the reserve related to the charge-off of one impaired construction and land development loan during the year
ended December 31, 2013 for $896,000. The overall balance in loans held as construction and land development decreased from December
31, 2012 to December 31, 2013 by $6.6 million which was generally driven by resolutions and payments of $9.1 million during the
year, offset by the addition of EBI balances of $2.5 million which did not have a general reserve at December 31, 2013.

The allowance for loan loss related to residential real estate
increased from $1.9 million at December 31, 2012 to $2.4 million at December 31, 2013. The increase was due to an increase in the
general portion of the reserve from $1.0 million at December 31, 2012 to $1.7 million at December 31, 2013. The increase was due
to an increase in residential loans of approximately $7.1 million and an increase in the historical loss factors related to these
loans.

21

The specific portion of the allowance for loan losses related
to commercial real estate loans decreased $743,000 from $1.4 million at December 31, 2012 to $691,000 at December 31, 2013 due
to the resolution and foreclosure of impaired loans during 2013 and the reduction in specific reserves due to improvements in the
underlying collateral values.

The overall general reserve as a percentage of loans
collectively evaluated for impairment was 0.64% at December 31, 2013 which compares to 0.72% at December 31, 2012 and 0.95%
at December 31, 2011. Excluding loans acquired as a result of the EBI merger on July 1, 2013, which as of December 31, 2013
had a minimal general reserve allocated, the general reserve as a percentage of loans collectively evaluated for impairment
would be 0.74%.Excluding loans acquired as a result of the AFI merger on April 1, 2012, the general reserve as a percentage
of loans collectively evaluated for impairment would be 0.82%. The 8 basis point decrease in this general reserve ratio as
compared to December 31, 2012 was primarily a result of a decrease of 48.4% ($23.7 million) in special mention loans from
December 31, 2012 to December 31, 2013 which have a higher allocation of general reserve.

The following table reflects charge-offs and recoveries per
loan category:

(Dollars in thousands)

December 31,

2013

2012

2011

2010

2009

Charge-offs

Recoveries

Charge-offs

Recoveries

Charge-offs

Recoveries

Charge-offs

Recoveries

Charge-offs

Recoveries

Commercial real estate

$

1,862

$

9

$

3,159

$

110

$

1,937

$

35

$

2,204

$

46

$

2,394

$

2

Residential real estate

309

10

1,019

189

2,829

13

2,069

26

—

—

Construction and land development

898

96

—

36

1,162

36

7,125

15

1,805

—

Commercial

724

66

5,648

43

1,306

63

1,617

80

1,549

27

Consumer and others

17

14

—

50

132

5

918

14

40

2

Total

$

3,810

$

195

$

9,826

$

428

$

7,366

$

152

$

13,933

$

181

$

5,788

$

31

Net charge-offs for the year ended December 31, 2013 were
approximately $3.6 million compared to $9.4 million for the year ended December 31, 2012. During the year ended December 31, 2012,
the Company strategically resolved an $11.4 million non-performing loan collateralized by 15 gas stations through acceptance of
a bulk sale offer at below appraised values. The resolution resulted in a $5.4 million charge-off during the year.

Deposits

We maintain a full range of deposit products, accounts and
services to meet the needs of the residents and businesses in our primary service area. Products include an array of checking account
programs for individuals and small businesses, including money market accounts, certificates of deposit, IRA accounts, and sweep
investment capabilities. We seek to make our services convenient to the community by offering 24-hour ATM access at some of our
facilities, access to other ATM networks available at other local financial institutions and retail establishments, telephone banking
services to include account inquiry and balance transfers, and courier service to certain customers who meet minimum qualifications.
We also take advantage of the use of technology by allowing our customers banking access via the Internet and various advanced
systems for cash management for our business customers. The rapid decline in the price of technology is now allowing smaller banks
the ability to offer many of the sophisticated products previously only available to customers of large banks. It is our strategy
to have a mix of core deposits, which favors non-interest bearing deposits in the range of 15% to 30% of total deposits with time
deposits comprising 50% or less of total core deposits. This strategy, to be successful, requires high levels of relationship banking
supported by strong distribution and product strategies. At December 31, 2013, we had approximately $333.1 million in deposits
by foreign nationals banking in the United States which were primarily assumed as part of the TBOM and Republic transactions. At
December 31, 2013, we had wholesale certificates of deposit of $64.3 million. 1st United also participates in the Certification
of Deposit Account Registration System (“CDARS”) and maintained $39.4 million of reciprocal deposits at December 31,
2013.

22

As of December 31, 2013, 2012, and 2011, the average distribution
by type of our deposit accounts was as follows:

(Dollars in thousands)

December 31,

2013

2012

2011

Average Balance

Avg Rate

Average Balance

Avg Rate

Average Balance

Avg Rate

Noninterest bearing accounts

$

467,445

—

$

385,066

—

$

325,277

—

Interest bearing accounts

NOW accounts

$

206,527

0.13

%

$

154,687

0.15

%

$

125,267

0.18

%

Money market accounts

343,377

0.31

%

338,242

0.46

%

278,104

0.79

%

Savings accounts

62,792

0.26

%

63,736

0.30

%

44,696

0.53

%

Certificates of deposit

296,983

0.73

%

336,970

0.98

%

297,806

1.12

%

Average interest bearing deposits

$

909,679

0.40

%

893,695

0.59

%

$

745,873

0.80

%

Average total deposits

$

1,377,124

0.27

%

$

1,278,701

0.41

%

$

1,071,150

0.56

%

As of December 31, 2013, certificates of deposit of $100,000
or more mature as follows:

(Dollars in thousands)

Amount

Weighted Average Rate

Up to 3 months

$

55,092

0.56

%

3 to 6 months

41,660

0.70

%

6 to 12 months

41,956

0.65

%

Over 12 months

64,007

1.02

%

$

202,715

0.75

%

Maturity terms, service fees and withdrawal penalties are
established by us on a periodic basis. The determination of rates and terms is predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals and federal regulations.

Borrowings

The following tables reflect borrowing activity for the years
ended December 31, 2013, 2012, and 2011:

(Dollars in thousands)

December 31, 2013

December 31, 2012

Actual

Weighted Avg Rate

YTD Avg

Avg Rate Paid

Actual

Weighted Avg Rate

YTD Avg

Avg Rate Paid

Repurchase agreements

$

14,363

0.11

%

$

15,824

0.11

%

$

19,855

0.12

%

$

11,779

0.13

%

FHLB advances

35,000

0.50

%

18,623

0.50

%

—

4.68

%

137

4.60

%

Total

$

49,363

$

34,447

$

19,855

$

11,916

December 31, 2011

Actual

Weighted Avg Rate

YTD Avg

Avg Rate Paid

Repurchase agreements

$

8,746

0.13

%

$

11,998

0.13

%

FHLB advances

5,000

4.60

%

5,000

4.60

%

Other borrowings

—

—

4,053

2.80

%

Total

$

13,746

$

21,051

23

Maximum balance at any given month end during the periods
of analysis is reflected in the following tables:

(Dollars in thousands)

December 31,

2013

2012

2011

Maximum Balance at any month-end

Maximum Balance at any month-end

Maximum Balance at any month-end

Repurchase agreements

$

18,956

Feb-13

$

20,201

Nov-12

$

17,405

Jan-11

FHLB advances

60,000

Sept-13

—

—

5,000

Jan-11

Other borrowings

—

—

—

—

4,750

Jan-11

Competition

Commercial banking in Florida, including our market, is highly
competitive due in large part to Florida’s historical profile of population growth and wealth. Our markets contain not only
community banks, but also significant numbers of the country’s largest commercial and wealth management/trust banks.

Interest rates, both on loans and deposits, and prices of
fee-based services are significant competitive factors among financial institutions generally. Other important competitive factors
include office location, office hours, the quality of customer service, community reputation, continuity of personnel and services,
and, in the case of larger commercial customers, relative lending limits and the ability to offer sophisticated cash management
and other commercial banking services. Many of our larger competitors have greater resources, broader geographic markets, more
extensive branch networks, and higher lending limits than we do. They also can offer more products and services and can better
afford and make more effective use of media advertising, support services and electronic technology than we can.

Our largest competitors in the market include Wells
Fargo & Company, Bank of America Corporation, SunTrust Banks Inc., JPMorgan Chase & Co., Citigroup Inc., Regions
Financial Corporation, BB&T Corporation, Raymond James Financial, Inc., and Bank United, Inc. These institutions capture
the majority of the deposits in the market. According to data provided by the FDIC, as of June 30, 2013, the latest date for
which data was publicly available, our market share, on a pro forma basis, was less than 1% in each county where we operate.
As of June 30, 2013, there were a total of 165 depository institutions operating in our markets. We believe that community
banks can compete successfully by providing personalized service and making timely, local decisions and thus draw business
away from larger institutions in the market. We also believe that further consolidation in the banking industry is likely to
create additional opportunities for community banks to capture deposits from affected customers who may become dissatisfied
as their financial institutions change ownership. In addition, we believe that the continued growth of our banking markets
affords us an opportunity to capture new deposits from new residents.

Seasonality

We do not believe our base of business to be seasonal in
nature.

Marketing and Distribution

In order to market our deposit products, we use local print
advertising, provide sales incentives for our employees and offer special events to generate customer traffic.

Our Board of Directors and management team realize the importance
of forging partnerships within the community as a method of expanding our customer base and serving the needs of our community.
In this regard, we are an active participant in various community activities and organizations. Participation in such events and
organizations allows management to determine what additional products and services are needed in our community as well as assisting
in our efforts to determine credit needs in accordance with the Community Reinvestment Act.

Regulatory Considerations

We must comply with state and federal banking laws and
regulations that control virtually all aspects of our operations. These laws and regulations generally aim to protect our depositors,
not necessarily our shareholders or our creditors. Any changes in applicable laws or regulations may materially affect our business
and prospects. Proposed legislative or regulatory changes may also affect our operations. The following description summarizes
some of the laws and regulations to which we are subject. References to applicable statutes and regulations are brief summaries,
do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations.

24

The Company

We are registered with the Federal Reserve as a financial
holding company under the Gramm-Leach-Bliley Act and are registered with the Federal Reserve as a bank holding company under the
Bank Holding Company Act of 1956. As a result, we are subject to supervisory regulation and examination by the Federal Reserve.
The Gramm-Leach-Bliley Act, the Bank Holding Company Act, and other federal laws subject financial holding companies to particular
restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including
regulatory enforcement actions for violations of laws and regulations.

Permitted Activities.

The Gramm-Leach-Bliley
Act modernized the U.S. banking system by: (i) allowing bank holding companies that qualify as “financial holding companies”
to engage in a broad range of financial and related activities; (ii) allowing insurers and other financial service companies to
acquire banks; (iii) removing restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory
companies; and (iv) establishing the overall regulatory scheme applicable to bank holding companies that also engage in insurance
and securities operations. The general effect of the law was to establish a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms, and other financial service providers. Activities that are financial in
nature are broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional
activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature,
incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness
of depository institutions or the financial system generally.

In contrast to financial holding companies, bank holding
companies are limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and
engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible,
the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to
the public that outweigh possible adverse effects. Possible benefits include greater convenience, increased competition, and gains
in efficiency. Possible adverse effects include undue concentration of resources, decreased or unfair competition, conflicts of
interest, and unsound banking practices. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries
to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause
to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company
may result from such an activity.

Changes in Control.

Subject to certain exceptions, the Bank Holding Company Act
and the Change in Bank Control Act, together with the applicable regulations, require Federal Reserve approval (or, depending on
the circumstances, no notice of disapproval) prior to any person or company acquiring “control” of a bank or bank holding
company. A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to
direct the management or policies of an insured depository institution or to vote 25% or more of any class of voting securities
of any insured depository institution. A rebuttable presumption of control exists if a person or company acquires 10% or more but
less than 25% of any class of voting securities of an insured depository institution and either the institution has registered
securities under Section 12 of the Securities Exchange Act of 1934 or as we will refer to as the Exchange Act, or no other person
will own a greater percentage of that class of voting securities immediately after the acquisition. Our common stock is registered
under Section 12 of the Exchange Act.

The Federal Reserve maintains a policy statement on minority
equity investments in banks and bank holding companies, that generally permits investors to (i) acquire up to 33 percent of
the total equity of a target bank or bank holding company, subject to certain conditions, including (but not limited to) that the
investing firm does not acquire 15 percent or more of any class of voting securities, and (ii) designate at least one
director, without triggering the various regulatory requirements associated with control.

25

As a bank holding company, we are required to obtain prior
approval from the Federal Reserve before (i) acquiring all or substantially all of the assets of a bank or bank holding company,
(ii) acquiring direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding
company (unless we own a majority of such bank’s voting shares), or (iii) merging or consolidating with any other bank or
bank holding company. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among
other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition,
the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing
the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the
safe and sound operation of the bank, under the Community Reinvestment Act of 1977.

Under Florida law, a person or entity proposing to directly
or indirectly acquire control of a Florida bank must also obtain permission from the Florida Office of Financial Regulation. Florida
statutes define “control” as either (i) indirectly or directly owning, controlling or having power to vote 25% or more
of the voting securities of a bank; (ii) controlling the election of a majority of directors of a bank; (iii) owning, controlling,
or having power to vote 10% or more of the voting securities as well as directly or indirectly exercising a controlling influence
over management or policies of a bank; or (iv) as determined by the Florida Office of Financial Regulation. These requirements
will affect us because 1st United is chartered under Florida law and changes in control of us are indirect changes in
control of 1st United.

Tying.

Bank holding companies and their affiliates are prohibited
from tying the provision of certain services, such as extending credit, to other services or products offered by the holding company
or its affiliates, such as deposit products.

Capital; Dividends; Source of
Strength.

The Federal Reserve imposes certain capital requirements
on bank holding companies under the Bank Holding Company Act, including a minimum leverage ratio and a minimum ratio of “qualifying”
capital to risk-weighted assets. These requirements are described below under “Capital Regulations.” Subject to its
capital requirements and certain other restrictions, we are able to borrow money to make a capital contribution to 1st
United, and such loans may be repaid from dividends paid from 1st United to us.

The ability of 1st United to pay dividends, however,
is subject to regulatory restrictions that are described below under “Dividends.” We are also able to raise capital
for contributions to 1st United by issuing securities without having to receive regulatory approval, subject to compliance
with federal and state securities laws.

In accordance with Federal Reserve policy, which has been
codified by the Dodd-Frank Act, we are expected to act as a source of financial strength to 1st United and to commit
resources to support 1st United in circumstances in which we might not otherwise do so. In furtherance of this policy,
the Federal Reserve may require a financial holding company to terminate any activity or relinquish control of a nonbank subsidiary
(other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes
a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further,
federal bank regulatory authorities have additional discretion to require a financial holding company to divest itself of any bank
or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

1st United Bank

1st United is a banking institution that is chartered
by and headquartered in the State of Florida, and it is subject to supervision and regulation by the Florida Office of Financial
Regulation. The Florida Office of Financial Regulation supervises and regulates all areas of 1st United’s operations
including, without limitation, the making of loans, the issuance of securities, the conduct of 1st United’s corporate
affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of banking
centers. 1st United is also a member bank of the Federal Reserve System, which makes 1st United’s operations
subject to broad federal regulation and oversight by the Federal Reserve. In addition, 1st United’s deposit accounts
are insured by the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement powers over 1st
United.

As a state-chartered banking institution in the State of
Florida, 1st United is empowered by statute, subject to the limitations contained in those statutes, to take and pay
interest on, savings and time deposits, to accept demand deposits, to make loans on residential and other real estate, to make
consumer and commercial loans, to invest, with certain limitations, in equity securities and in debt obligations of banks and corporations
and to provide various other banking services for the benefit of 1st United’s customers. Various consumer laws
and regulations also affect the operations of 1st United, including state usury laws, laws relating to fiduciaries,
consumer credit and equal credit opportunity laws, and fair credit reporting. In addition, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (“FDICIA”) prohibits insured state chartered institutions from conducting activities as principal
that are not permitted for national banks. A bank, however, may engage in an otherwise prohibited activity if it meets its minimum
capital requirements and the FDIC determines that the activity does not present a significant risk to the Deposit Insurance Fund.

26

Reserves.

The Federal Reserve requires all depository institutions
to maintain reserves against some transaction accounts (primarily NOW and Super NOW checking accounts). The balances maintained
to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements. An institution may
borrow from the Federal Reserve Bank “discount window” as a secondary source of funds, provided that the institution
meets the Federal Reserve Bank’s credit standards.

Dividends.

1st United is subject to legal limitations on
the frequency and amount of dividends that can be paid to us. The Federal Reserve may restrict the ability of 1st United
to pay dividends if such payments would constitute an unsafe or unsound banking practice. These regulations and restrictions may
limit our ability to obtain funds from 1st United for our cash needs, including funds for acquisitions and the payment
of dividends, interest, and operating expenses.

In addition, Florida law also places restrictions on the
declaration of dividends from state chartered banks to their holding companies. Pursuant to the Florida Financial Institutions
Code, the board of directors of state-chartered banks, after charging off bad debts, depreciation and other worthless assets, if
any, and making provisions for reasonably anticipated future losses on loans and other assets, may quarterly, semi-annually or
annually declare a dividend of up to the aggregate net profits of that period combined with the bank’s retained net profits
for the preceding two years and, with the approval of the Florida Office of Financial Regulation and Federal Reserve, declare a
dividend from retained net profits which accrued prior to the preceding two years. Before declaring such dividends, 20% of the
net profits for the preceding period as is covered by the dividend must be transferred to the surplus fund of the bank until this
fund becomes equal to the amount of the bank’s common stock then issued and outstanding. A state-chartered bank may not declare
any dividend if (i) its net income (loss) from the current year combined with the retained net income (loss) for the preceding
two years aggregates a loss or (ii) the payment of such dividend would cause the capital account of the bank to fall below the
minimum amount required by law, regulation, order or any written agreement with the Florida Office of Financial Regulation or a
federal regulatory agency.

Insurance of Accounts and Other
Assessments.

We pay our deposit insurance assessments to the Deposit Insurance
Fund, which is determined through a risk-based assessment system. Our deposit accounts are currently insured by the Deposit Insurance
Fund generally up to a maximum of $250,000 per separately insured depositor.

Under the current assessment system, the FDIC assigns an
institution to one of four risk categories designed to measure risk. Total base assessment rates currently range from 0.025% of
deposits for an institution in the highest rated sub-category of the highest rated category to 0.45% of deposits for an institution
in the lowest rated category. In addition, all FDIC insured institutions are required to pay assessments to the FDIC at an annual
rate of approximately six tenths of a basis point of insured deposits to fund interest payments on bonds issued by the Financing
Corporation, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance
Fund. These assessments will continue until the Financing Corporation bonds mature in 2017 through 2019.

Under the Federal Deposit Insurance Act (the “FDIA”),
the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC.

27

Transactions With Affiliates.

Pursuant to Sections 23A and 23B of the Federal Reserve Act
and Regulation W, the authority of 1st United to engage in transactions with related parties or “affiliates”
or to make loans to insiders is limited. Loan transactions with an “affiliate” generally must be collateralized and
certain transactions between 1st United and its “affiliates”, including the sale of assets, the payment
of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable
to 1st United, as those prevailing for comparable nonaffiliated transactions. In addition, 1st United generally
may not purchase securities issued or underwritten by affiliates.

Loans to executive officers, directors or to any person who
directly or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more
than 10% of any class of voting securities of a bank, which we refer to as “10% Shareholders”, or to any political
or campaign committee the funds or services of which will benefit those executive officers, directors, or 10% Shareholders or which
is controlled by those executive officers, directors or 10% Shareholders, are subject to Sections 22(g) and 22(h) of the Federal
Reserve Act and their corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition
on personal loans to executives (which exempts financial institutions in compliance with the insider lending restrictions of Section
22(h) of the Federal Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing
on transactions made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance
by a disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of
those individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus
plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral,
or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed 1st United’s
unimpaired capital and unimpaired surplus. Section 22(g) identifies limited circumstances in which 1st United is permitted
to extend credit to executive officers.

Community Reinvestment Act.

The Community Reinvestment Act and its corresponding regulations
are intended to encourage banks to help meet the credit needs of their service area, including low and moderate income neighborhoods,
consistent with the safe and sound operations of the banks. These regulations provide for regulatory assessment of a bank’s
record in meeting the credit needs of its service area. Federal banking agencies are required to make public a rating of a bank’s
performance under the Community Reinvestment Act. The Federal Reserve considers a bank’s Community Reinvestment Act rating
when the bank submits an application to establish banking centers, merge, or acquire the assets and assume the liabilities of another
bank. In the case of a financial holding company, the Community Reinvestment Act performance record of all banks involved in the
merger or acquisition are reviewed in connection with the filing of an application to acquire ownership or control of shares or
assets of a bank or to merge with any other financial holding company. An unsatisfactory record can substantially delay or block
the transaction. 1st United received a satisfactory rating on its most recent Community Reinvestment Act assessment.

Capital Regulations.

The Federal Reserve has adopted risk-based capital adequacy
guidelines for financial holding companies and their subsidiary state-chartered banks that are members of the Federal Reserve System.
As described above, the federal banking regulators have issued final rules that are effective January 1, 2015 for community banks.
These final rules are major changes to the current general risk-based capital rule, and are designed to substantially conform with
the Basel III international standards.

Current Guidelines. The current guidelines
require all financial holding companies and federally regulated banks to maintain a minimum risk-based total capital ratio equal
to 8%, of which at least 4% must be Tier I Capital. Tier I Capital, which includes common shareholders’ equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock and certain trust preferred securities,
less certain goodwill items and other intangible assets, is required to equal at least 4% of risk-weighted assets. The remainder
(“Tier II Capital”) may consist of (i) an allowance for loan losses of up to 1.25% of risk-weighted assets, (ii) excess
of qualifying perpetual preferred stock, (iii) hybrid capital instruments, (iv) perpetual debt, (v) mandatory convertible securities,
and (vi) subordinated debt and intermediate-term preferred stock up to 50% of Tier I Capital. Total capital is the sum of Tier
I and Tier II Capital less reciprocal holdings of other banking organizations’ capital instruments, investments in unconsolidated
subsidiaries and any other deductions as determined by the appropriate regulator (determined on a case by case basis or as a matter
of policy after formal rule making).

28

In computing total risk-weighted assets, bank and financial
holding company assets are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are given
similar credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. Most
loans will be assigned to the 100% risk category, except for performing first mortgage loans fully secured by 1- to 4-family and
certain multi-family residential property, which carry a 50% risk rating. Most investment securities (including, primarily, general
obligation claims on states or other political subdivisions of the United States) will be assigned to the 20% category, except
for municipal or state revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury or obligations
backed by the full faith and credit of the U.S. Government, which have a 0% risk-weight. In covering off-balance sheet items, direct
credit substitutes, including general guarantees and standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction-related contingencies such as bid bonds, standby letters of credit backing non-financial obligations,
and undrawn commitments (including commercial credit lines with an initial maturity of more than one year) have a 50% conversion
factor. Short-term commercial letters of credit are converted at 20% and certain short-term unconditionally cancelable commitments
have a 0% factor.

The federal bank regulatory authorities have also adopted
regulations that supplement the risk-based guidelines. These regulations generally require banks and financial holding companies
to maintain a minimum level of Tier I Capital to total assets less goodwill of 4% (the “leverage ratio”). The Federal
Reserve permits a bank to maintain a minimum 3% leverage ratio if the bank achieves a 1 rating under the CAMELS rating system in
its most recent examination, as long as the bank is not experiencing or anticipating significant growth. The CAMELS rating is a
non-public system used by bank regulators to rate the strength and weaknesses of financial institutions. The CAMELS rating is comprised
of six categories: capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.

Banking organizations experiencing or anticipating significant
growth, as well as those organizations which do not satisfy the criteria described above, will be required to maintain a minimum
leverage ratio ranging generally from 4% to 5%. The bank regulators also continue to consider a “tangible Tier I leverage
ratio” in evaluating proposals for expansion or new activities.

The tangible Tier I leverage ratio is the ratio of a banking
organization’s Tier I Capital, less deductions for intangibles otherwise includable in Tier I Capital, to total tangible
assets.

Federal law and regulations establish a capital-based regulatory
scheme designed to promote early intervention for troubled banks and require the FDIC to choose the least expensive resolution
of bank failures. The capital-based regulatory framework contains five categories of compliance with regulatory capital requirements,
including “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized,” and “critically undercapitalized.” To qualify as a “well-capitalized” institution,
a bank must have a leverage ratio of no less than 5%, a Tier I Capital ratio of no less than 6%, and a total risk-based capital
ratio of no less than 10%, and the bank must not be under any order or directive from the appropriate regulatory agency to meet
and maintain a specific capital level. Generally, a financial institution must be “well capitalized” before the Federal
Reserve will approve an application by a financial holding company to acquire or merge with a bank or bank holding company.

Under the regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines (after notice and an opportunity for hearing) that
the institution is in an unsafe or unsound condition or is engaging in an unsafe or unsound practice. The degree of regulatory
scrutiny of a financial institution will increase, and the permissible activities of the institution will decrease, as it moves
downward through the capital categories. Institutions that fall into one of the three undercapitalized categories may be required
to (i) submit a capital restoration plan; (ii) raise additional capital; (iii) restrict their growth, deposit interest rates, and
other activities; (iv) improve their management; (v) eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Financial holding companies controlling financial institutions can be called upon to boost the institutions’
capital and to partially guarantee the institutions’ performance under their capital restoration plans.

It should be noted that the minimum ratios referred to above
are merely guidelines and the bank regulators possess the discretionary authority to require higher capital ratios.

As of December 31, 2013, we exceeded the requirements contained
in the applicable regulations, policies and directives pertaining to capital adequacy to be classified as “well capitalized”,
and are unaware of any material violation or alleged violation of these regulations, policies or directives. Rapid growth, poor
loan portfolio performance, or poor earnings performance, or a combination of these factors, could change our capital position
in a relatively short period of time, making additional capital infusions necessary.

29

Guidelines Effective January 1, 2015. In
July 2013, the Federal Reserve Board released its final rules which will implement in the United States the Basel III
regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank
Act. Under the final rule, minimum requirements will increase for both the quality and quantity of capital held by banking
organizations. In this respect, the final rule implements strict eligibility criteria for regulatory capital instruments and
improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international
Basel framework, the rule includes a new minimum ratio of Common Equity Tier I Capital to Risk-Weighted Assets of 4.5% and a
Common Equity Tier I Capital conservation buffer of 2.5% of risk-weighted assets. The conservation buffer will be phased in
from 2016 through 2019. The rule also, among other things, raises the minimum ratio of Tier I Capital to Risk-Weighted Assets
from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.

Prompt Corrective Action.

Immediately upon becoming undercapitalized, a depository
institution becomes subject to the provisions of Section 38 of the FDIA, which: (i) restrict payment of capital distributions
and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and
its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth
of the institution’s assets; and (v) require prior approval of certain expansion proposals. The appropriate federal
banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency
determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost
to the deposit insurance fund, subject in certain cases to specified procedures. These discretionary supervisory actions include:
(i) requiring the institution to raise additional capital; (ii) restricting transactions with affiliates; (iii) requiring
divestiture of the institution or the sale of the institution to a willing purchaser; and (iv) any other supervisory action
that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect
to significantly undercapitalized and critically undercapitalized institutions.

Interstate Banking and Branching.

The Bank Holding Company Act was amended by the Interstate
Banking Act. The Interstate Banking Act provides that adequately capitalized and managed financial and bank holding companies are
permitted to acquire banks in any state.

State laws prohibiting interstate banking or discriminating
against out-of-state banks are preempted. States are not permitted to enact laws opting out of this provision; however, states
are allowed to adopt a minimum age restriction requiring that target banks located within the state be in existence for a period
of years, up to a maximum of five years, before a bank may be subject to the Interstate Banking Act. The Interstate Banking Act,
as amended by the Dodd-Frank Act, establishes deposit caps which prohibit acquisitions that result in the acquiring company controlling
30% or more of the deposits of insured banks and thrift institutions held in the state in which the target maintains a branch or
10% or more of the deposits nationwide. States have the authority to waive the 30% deposit cap. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state companies, and the federal deposit caps apply only to initial
entry acquisitions.

Under the Dodd-Frank Act, national banks and state banks
are able to establish branches in any state if that state would permit the establishment of the branch by a state bank chartered
in that state. Florida law permits a state bank to establish a branch of the bank anywhere in the state. Accordingly, under the
Dodd-Frank Act, a bank with its headquarters outside the State of Florida may establish branches anywhere within Florida.

Anti-money Laundering.

The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”), provides the federal government
with additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers,
increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act (“BSA”),
the USA PATRIOT Act puts in place measures intended to encourage information sharing among bank regulatory and law enforcement
agencies. In addition, certain provisions of the USA PATRIOT Act impose affirmative obligations on a broad range of financial institutions.

Among other requirements, the USA PATRIOT Act and the related
Federal Reserve regulations require banks to establish anti-money laundering programs that include, at a minimum:

§

internal policies, procedures and controls designed to implement and maintain the savings association’s
compliance with all of the requirements of the USA PATRIOT Act, the BSA and related laws and regulations;

§

systems and procedures for monitoring and reporting of suspicious transactions and activities;

§

a designated compliance officer;

§

employee training;

§

an independent audit function to test the anti-money laundering program;

§

procedures to verify the identity of each customer upon the opening of accounts; and

Additionally, the USA PATRIOT Act requires each financial
institution to develop a customer identification program (“CIP”) as part of our anti-money laundering program. The
key components of the CIP are identification, verification, government list comparison, notice and record retention. The purpose
of the CIP is to enable the financial institution to determine the true identity and anticipated account activity of each customer.
To make this determination, among other things, the financial institution must collect certain information from customers at the
time they enter into the customer relationship with the financial institution. This information must be verified within a reasonable
time through documentary and non-documentary methods. Furthermore, all customers must be screened against any CIP-related government
lists of known or suspected terrorists. We and our affiliates have adopted policies, procedures and controls to comply with the
BSA and the USA PATRIOT Act.

Regulatory Enforcement Authority.

Federal and state banking laws grant substantial enforcement
powers to federal and state banking regulators. This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions against banking organizations
and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations
and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading
or untimely reports filed with regulatory authorities.

Federal Home Loan Bank System.

1st United is a member of the FHLB of Atlanta,
which is one of 12 regional Federal Home Loan Banks. Each FHLB serves as a reserve or central bank for its members within its assigned
region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations
of the FHLB system. It makes loans to members (i.e. advances) in accordance with policies and procedures established by the board
of trustees of the FHLB.

As a member of the FHLB of Atlanta, 1st United
is required to own capital stock in the FHLB in an amount at least equal to 0.12% (or 12 basis points) of the 1st United’s
total assets at the end of each calendar year (with a dollar cap of $20 million), plus 4.5% of its outstanding advances (borrowings)
from the FHLB of Atlanta under the activity-based stock ownership requirement. On December 31, 2013, 1st United was
in compliance with this requirement.

Privacy.

Under the Gramm-Leach-Bliley Act, federal banking regulators
adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers
to nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow
consumers to prevent disclosure of certain personal information to nonaffiliated third parties.

Consumer Laws and Regulations.

1st United is also subject to other federal and
state consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth
below is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic
Funds Transfer Act, the Expedited Funds Availability Act, the Check Clearing for the 21st Century Act, the Fair Credit Reporting
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Fair and Accurate Credit Transactions
Act, the Mortgage Disclosure Improvement Act, and the Real Estate Settlement Procedures Act, among others. These laws and regulations
mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking
deposits or making loans to such customers. 1st United must comply with the applicable provisions of these consumer
protection laws and regulations as part of its ongoing customer relations.

31

Future Legislative Developments.

Various legislative acts are from time to time introduced
in Congress and the Florida legislature. This legislation may change banking statutes and the environment in which our banking
subsidiary and we operate in substantial and unpredictable ways. We cannot determine the ultimate effect that potential legislation,
if enacted, or implementing regulations with respect thereto, would have upon our financial condition or results of operations
or that of our banking subsidiary.

Effect of Governmental Monetary Policies.

The commercial banking business in which 1st United
engages is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. Changes
in the discount rate on member bank borrowing, availability of borrowing at the “discount window,” open market operations,
the imposition of changes in reserve requirements against member banks’ deposits and assets of foreign banking centers and
the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to influence
overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans
or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial
banks and are expected to continue to do so in the future. The monetary policies of the Federal Reserve are influenced by various
factors, including inflation, unemployment, and short-term and long-term changes in the international trade balance and in the
fiscal policies of the U.S. Government. Future monetary policies and the effect of such policies on the future business and earnings
of 1st United cannot be predicted.

Income Taxes

We are subject to income taxes at the federal level and subject
to state taxation in Florida. We file a consolidated federal income tax return with a fiscal year ending on December 31.

Employees

As of December 31, 2013, we had a total of approximately
304 employees, including approximately 290 full-time employees. The employees are not represented by a collective bargaining unit.
We consider relations with employees to be good.

Segment Reporting

We have one reportable segment.

Website Access to Company’s Reports

Our Internet website is www.1stunitedbankfl.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including any amendments to those reports filed
or furnished pursuant to section 13(a) or 15(d), and reports filed pursuant to Section 16, 13(d), and 13(g) of the Exchange Act
are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission. The information on our website is not incorporated by reference into this
report.

32

Item 1A. Risk Factors

An investment in our common stock contains a high degree
of risk. You should consider carefully the following risk factors before deciding whether to invest in our common stock. Our business,
including our operating results and financial condition, could be harmed by any of these risks. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business. The
trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In
assessing these risks, you should also refer to the other information contained in our filings with the SEC, including our financial
statements and related notes.

Risks Related to Our Business

Failure to comply with the terms of the Loss Sharing
Agreements with the FDIC may result in significant losses.

On October 21, 2011, 1st United entered into an
Assumption Agreement – Whole Bank; All Deposits (“Old Harbor Purchase and Assumption Agreement”) with the FDIC,
pursuant to which 1st United assumed all deposits and certain identified assets and liabilities of Old Harbor Bank,
a Florida-chartered commercial bank headquartered in Clearwater, Florida. 1st United also entered into Loss Sharing
Agreements with the FDIC. Under the Loss Sharing Agreements, 1st United will share losses in the losses on assets covered
under the Old Harbor Purchase and Assumption Agreement. The FDIC will reimburse 1st United for 70% of up to $49 million
of losses with respect to the acquired $116.7 million loan portfolio and the $2.3 million of other real estate owned, or “OREO”
at fair value.

On December 17, 2010, 1st United entered into
an Assumption Agreement – Whole Bank; All Deposits (“Bank of Miami Purchase and Assumption Agreement”) with the
FDIC, pursuant to which 1st United assumed all deposits and certain identified assets and liabilities of The Bank of
Miami, a national association headquartered in Miami, Florida. 1st United also entered into Loss Sharing Agreements
with the FDIC. Under the Loss Sharing Agreements, 1st United will share in the losses on assets covered under the Bank
of Miami Purchase and Assumption Agreement. The FDIC will reimburse 1st United for 80% of losses with respect to the
$218.2 million loan portfolio and the $8.2 million of OREO, at fair value on the date acquired.

On December 11, 2009, 1st United entered into
an Assumption Agreement – Whole Bank; All Deposits (“Republic Purchase and Assumption Agreement”) with the FDIC,
pursuant to which 1st United assumed all deposits (except certain broker deposits) and certain identified assets and
liabilities of Republic Federal Bank, a national association headquartered in Miami, Florida. 1st United also entered
into Loss Sharing Agreements with the FDIC. Under the Loss Sharing Agreements, 1st United will share in the losses on
assets covered under the Republic Purchase and Assumption Agreement. The FDIC will reimburse 1st United for 80% of losses
of up to $36 million with respect to the entire $185 million acquired loan portfolio at fair value. The FDIC will reimburse 1st
United for 95% of losses in excess of $36 million with respect to the $238 million acquired loan portfolio.

The Old Harbor Purchase and Assumption Agreement, the Republic
Purchase and Assumption Agreement and the Bank of Miami Purchase and Assumption Agreement and their respective Loss Sharing Agreements
have specific, detailed and cumbersome compliance, servicing, notification and reporting requirements, including certain restrictions
on our change of control. The Loss Sharing Agreements prohibit the assignment by 1st United of its rights under the
Loss Sharing Agreements and the sale or transfer of any subsidiary of 1stUnited holding title to assets covered under
the Loss Sharing Agreements without the prior written consent of the FDIC. An assignment would include (i) the merger or consolidation
of 1st United with or into another bank; (ii) our merger or consolidation with or into another company; (iii) the sale
of all or substantially all of the assets of 1st United to another company or person; (iv) a sale by any one or more
shareholders of more than 9% of the outstanding shares of 1st United Bancorp, Inc., 1st United, or any subsidiary
holding assets subject to the Loss Sharing Agreements or (v) the sale of shares by 1st United Bancorp, Inc., 1st
United, or any subsidiary holding assets subject to the Loss Sharing Agreements, in a public or private offering, that increases
the number of outstanding shares by more than 9%. 1st United’s rights under the Loss Sharing Agreements will terminate
if any assignment of the Loss Sharing Agreements occurs without the prior written consent of the FDIC.

Our failure to comply with the terms of the Loss Sharing
Agreements or to properly service the loans and OREO under the requirements of the Loss Sharing Agreements may cause individual
loans or large pools of loans to lose eligibility for loss sharing payments from the FDIC. This could result in material losses
that are currently not anticipated.

33

We may incur losses if we are unable to successfully
manage interest rate risk.

Our profitability depends to a large extent on 1st
United’s net interest income, which is the difference between income on interest-earning assets, such as loans and investment
securities, and expense on interest-bearing liabilities such as deposits and borrowings. We are unable to predict changes in market
interest rates, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply,
domestic and international events and changes in the United States and other financial markets. Our net interest income may be
reduced if: (i) more interest-earning assets than interest-bearing liabilities reprice or mature during a time when interest rates
are declining or (ii) more interest-bearing liabilities than interest-earning assets reprice or mature during a time when interest
rates are rising.

Changes in the difference between short- and long-term interest
rates may also harm our business. For example, short-term deposits may be used to fund longer-term loans. When differences between
short-term and long-term interest rates shrink or disappear, as is likely in the current zero interest rate policy environment,
the spread between rates paid on deposits and received on loans could narrow significantly, decreasing our net interest income.

The required accounting treatment of troubled loans
we acquired through acquisitions could result in higher net interest margins and interest income in current periods and lower net
interest margins and interest income in future periods.

Under U.S. GAAP, we are required to record troubled loans
acquired through acquisitions at fair value which may underestimate the actual performance of such loans. As a result, if these
loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of
the loan (the “discount”) is accreted into net interest income. Thus, our net interest margins may initially appear
higher. In 2013 and 2012, our net interest margins were increased by 1.56% (which 1.13% was due to the resolution of and changes
in cash flows on acquired assets) and 1.50% (which 0.81% was due to the resolution of and changes in cash flows on acquired assets),
respectively, because of these discount accretions. We expect the yields on our loans to decline as our acquired loan portfolio
pays down or matures and we expect downward pressure on our interest income to the extent that the runoff on our acquired loan
portfolio is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest income
in current periods and lower net interest rate margin and lower interest income in future periods.

We may face risks with respect to future expansion.

As a strategy, we have sought to increase the size of our
operations by aggressively pursuing business development opportunities. We have made acquisitions of financial institutions and
may continue to seek whole bank or branch acquisitions in the future. Acquisitions and mergers involve a number of risks, including:

§

the time and costs associated with identifying and evaluating potential acquisitions and merger
partners;

§

the ability to finance an acquisition and possible ownership and economic dilution to existing
shareholders;

§

diversion of management’s attention to the negotiation of a transaction, and the integration
of the operations and personnel of the acquired institution;

§

the incurrence and possible impairment of goodwill associated with an acquisition and possible
adverse short-term effects on results of operations; and

§

the risk of loss of key employees and customers.

We may incur substantial costs to expand, and such expansion
may not result in the levels of profits we seek. Integration efforts for any future mergers and acquisitions may not be successful
and following any future merger or acquisition, after giving it effect, we may not achieve financial results comparable to or better
than our historical experience.

Future acquisitions may dilute shareholder value.

We regularly evaluate opportunities to acquire other financial
institutions. As a result, merger and acquisition discussions and, in some cases, negotiations may take place and future mergers
or acquisitions involving cash, debt, or equity securities may occur at any time. Acquisitions typically involve the payment of
a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share
may occur in connection with any future acquisitions.

34

Our business may be adversely affected by conditions
in financial markets and economic conditions generally.

Our business is concentrated in the South and Central Florida
market areas. As a result, our financial condition, results of operations and cash flows are subject to changes if there are changes
in the economic conditions in these areas. A prolonged period of economic recession or other adverse economic conditions in these
areas could have a negative impact on us. A significant decline in general economic conditions nationally, caused by inflation,
recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in
securities markets, declines in the housing market, a tightening credit environment or other factors could impact these local economic
conditions and, in turn, have a material adverse effect on our financial condition and results of operations.

Economic conditions began deteriorating during the latter
half of 2007 and have not fully recovered since that time. Although economic conditions are improving, business activity across
a wide range of industries and regions, including South and Central Florida, has been greatly reduced. While unemployment in the
U.S. and our market areas has begun to improve, unemployment remains elevated compared to recent historical levels prior to 2007.
As a result of this economic crisis, many lending institutions, including us, have experienced declines in the performance of their
loans, including construction, land development and land loans, commercial loans and consumer loans. Moreover, competition among
depository institutions for deposits and quality loans has increased significantly. Loan demand has not returned to pre-recession
levels. In addition, the values of real estate collateral supporting many commercial loans and home mortgages declined during the
recession, and despite recent increasing property values in our markets, prices have not fully recovered. Overall, the general
business environment has had an adverse effect on our business, and the environment may not improve in the near term. Accordingly,
unless and until conditions improve, our business, financial condition and results of operations could continue to be adversely
affected.

Our success is highly dependent upon our ability to
retain the members of our senior management team and the loss of key personnel may adversely affect us.

Our success is, and expected to remain, highly dependent
on our senior management team, including Messrs. Orlando, Schupp, Marino, Jacobson, and Ostermayer. As a community bank, it is
our management’s extensive knowledge of and relationships in the community that generate business for us. Successful execution
of our growth strategy will continue to place significant demands on our management and the loss of any such services may adversely
affect our growth and profitability.

An inadequate allowance for loan losses would reduce
our earnings.

We are exposed to the risk that our customers will be unable
to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient
to assure full repayment. This will result in credit losses that are inherent in the lending business. We evaluate the collectability
of our loan portfolio and provide an allowance for loan losses that we believe is adequate based upon such factors as:

§

the risk characteristics of various classifications of loans;

§

previous loan loss experience;

§

specific loans that have loss potential;

§

delinquency trends;

§

estimated fair market value of the collateral;

§

current economic conditions; and

§

geographic and industry loan concentrations.

As of December 31, 2013, 1st United’s allowance
for loan losses was $9.6 million, which represented approximately 0.85% of its total amount of loans. 1st United had
$15.8 million in non-accruing loans as of December 31, 2013, of which approximately $6.8 million are covered by Loss Sharing Agreements.
The allowance may not prove sufficient to cover future loan losses. Although management uses the best information available to
make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ
substantially from the assumptions used or adverse developments arise with respect to 1st United’s non-performing
or performing loans. In addition, regulatory agencies, as an integral part of their examination process, periodically review the
estimated losses on loans. Such agencies may require us to recognize additional losses based on their judgments about information
available to them at the time of their examination. Accordingly, the allowance for loan losses may not be adequate to cover loan
losses or significant increases to the allowance may be required in the future if economic conditions should worsen. Material additions
to 1st United’s allowance for loan losses would adversely impact our net income and capital.

35

If our nonperforming assets increase, our earnings
will suffer.

At December 31, 2013, our nonperforming assets (which consist
of non-accruing loans, accruing loans 90+ days delinquent, and foreclosed real estate assets) totaled $34.4 million, or 1.87 %
of total assets, which is a decrease of $8.5 million or 19.9% over nonperforming assets at December 31, 2012. At December
31, 2012 and December 31, 2011, our nonperforming assets were $42.9 million or 2.74% of total assets and $57.0 million or 4.01%,
respectively. Nonperforming assets included $17.6 million, $24.6 million, and $23.0 million assets covered by Loss Sharing Agreements
as of December 31, 2013, December 31, 2012, and December 31, 2011, respectively. Our nonperforming assets adversely affect
our net income in various ways. We do not record interest income on non-accrual loans or real estate owned. We must reserve for
probable losses, which is established through a current period charge to the provision for loan losses as well as from time to
time, as appropriate, write down the value of properties in our other real estate owned portfolio to reflect changing market values.
Additionally, there are legal fees associated the resolution of problem assets as well as carrying costs such as taxes, insurance
and maintenance related to our other real estate owned. Further, the resolution of nonperforming assets requires the active involvement
of management, which can distract them from more profitable activity. Finally, if our estimate for the recorded allowance for
loan losses proves to be incorrect and our allowance is inadequate, we will have to increase the allowance accordingly.

Our loan portfolio includes loans with a higher risk
of loss which could lead to higher loan losses and nonperforming assets.

We originate commercial real estate loans, construction and
development loans, consumer loans, and residential mortgage loans primarily within our market area. Commercial real estate, commercial,
and construction and development loans tend to involve larger loan balances to a single borrower or groups of related borrowers
and are most susceptible to a risk of loss during a downturn in the business cycle. These loans also have historically had greater
credit risk than other loans for the following reasons:

§

Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts
sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully
amortizing over a loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon
payment typically will depend on being able to either refinance the loan or timely sell the underlying property. As of December
31, 2013, commercial real estate loans, including multi-family loans, comprised approximately 67% of our total loan portfolio.

§

Commercial Loans. Repayment is generally dependent upon the successful operation of the
borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be
illiquid, or fluctuate in value based on the success of the business. As of December 31, 2013, commercial loans comprised approximately
14% of our total loan portfolio.

§

Construction and Development Loans. The risk of loss is largely dependent on our initial
estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability
of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If our estimate
is inaccurate or if actual construction costs exceed estimates, the value of the property securing our loan may be insufficient
to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. As of December
31, 2013, construction and development loans comprised approximately 3% of our total loan portfolio.

The increased risks associated with these types of loans
result in a correspondingly higher probability of default on such loans (as compared to single-family real estate loans). Loan
defaults would likely increase our loan losses and nonperforming assets and could adversely affect our allowance for loan losses.

Confidential customer information transmitted through
1st United’s online banking service is vulnerable to security breaches and computer viruses, which could expose
1st United to litigation and adversely affect its reputation and ability to generate deposits.

1st United provides its customers the ability
to bank online. The secure transmission of confidential information over the Internet is a critical element of online banking.
1st United’s network or those of its customers could be vulnerable to unauthorized access, computer viruses, phishing
schemes and other security problems. 1st United may be required to spend significant capital and other resources to
protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
To the extent that 1st United’s activities or the activities of its customers involve the storage and transmission
of confidential information, security breaches and viruses could expose 1st United to claims, litigation and other possible
liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence
in 1st United’s systems and could adversely affect its reputation and its ability to generate deposits.

36

We may need additional capital resources in the future
and these capital resources may not be available on acceptable terms or at all.

We may need to incur additional debt or equity financing
in the future to make strategic acquisitions or investments, for future growth, to fund losses or additional provisions for loan
losses in the future, or to maintain certain capital levels in accordance with banking regulations. Such financing may not be available
to us on acceptable terms or at all. Our ability to raise additional capital may also be restricted by the Loss-Sharing Agreements
we entered into with the FDIC if the capital raise would effect a change in control of 1st United.

Further, in the event that we offer additional shares of
our common stock in the future, our Articles of Incorporation do not provide shareholders with preemptive rights and such shares
may be offered to investors other than our existing shareholders for prices at or below the then current market price of our common
stock, all at the discretion of the Board. If we do sell additional shares of common stock to raise capital, the sale could reduce
market price per share of common stock and dilute your ownership interest and such dilution could be substantial.

Since we engage in lending secured by real estate and
may be forced to foreclose on the collateral property and own the underlying real estate, we may be subject to the increased costs
associated with the ownership of real property, which could result in reduced net income.

Since we originate loans secured by real estate, we may have
to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case
we are exposed to the risks inherent in the ownership of real estate.

The amount that we, as mortgagee, may realize after a default
is dependent upon factors outside of our control, including, but not limited to:

§

General or local economic conditions;

§

Environmental cleanup liability;

§

Neighborhood values;

§

Interest rates;

§

Real estate taxes;

§

Operating expenses of the mortgaged properties;

§

Supply and demand for rental units or properties;

§

Our ability to obtain and maintain adequate occupancy of the properties;

§

Zoning laws;

§

Governmental rules, regulations and fiscal policies; and

§

Acts of God.

Certain expenditures associated with the ownership of real
estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate. Therefore, the
cost of operating real property may exceed the rental income earned from such property, and we may have to advance funds in order
to protect our investment or we may be required to dispose of the real property at a loss.

A substantial number of our customers have economic and cultural
ties to Latin America and, as a result, we are likely to feel the effects of adverse economic and political conditions in Latin
America. As of December 31, 2013, approximately $269.5 million of our deposits were from foreign nationals whose primary residence
is Latin America. U.S. and global economic policies, political or political tension, and global economic conditions may adversely
impact the Latin American economies. If economic conditions in Latin America change, we could experience an outflow of deposits
by those of our customers with connections to Latin America.

Liquidity is essential to our business. An inability to raise
funds through deposits, borrowings, and other sources, could have a substantial negative effect on our liquidity. Our access to
funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that
affect us specifically or the financial services industry or economy in general. Factors that could negatively impact our access
to liquidity sources include:

§

a decrease in the level of our business activity as a result of an economic downturn in the markets
in which our loans are concentrated;

§

adverse regulatory action against us; or

§

our inability to attract and retain deposits.

Our ability to borrow could be impaired by factors that are
not specific to us or our region, such as a disruption in the financial markets or negative views and expectations about the prospects
for the financial services industry and the unstable credit markets.

An impairment in the carrying value of our goodwill
could negatively impact our earnings and capital.

Goodwill is initially recorded at fair value and is not amortized,
but is reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying
value may not be recoverable. Given the current economic environment and conditions in the financial markets, we could be required
to evaluate the recoverability of goodwill prior to our normal annual assessment if we experience disruption in our business, unexpected
significant declines in our operating results, or sustained market capitalization declines. These types of events and the resulting
analyses could result in goodwill impairment charges in the future. These non-cash impairment charges could adversely affect our
results of operations in future periods, and could also significantly impact certain financial ratios and limit our ability to
obtain financing or raise capital in the future. A goodwill impairment charge does not adversely affect the calculation of our
risk based and tangible capital ratios. As of December 31, 2013, we had $64.0 million in goodwill, which represented approximately
3.5% of our total assets.

We face vigorous competition from other banks and other financial
institutions, including savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and
other financial services in our market area. A number of these banks and other financial institutions with whom we compete for
business and deposits are significantly larger than we are and have substantially greater access to capital and other resources,
as well as larger lending limits and branch systems, and offer a wider array of banking services. To a limited extent, we also
compete with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies,
insurance companies and governmental organizations which may offer more favorable financing than we can. Many of our non-bank competitors
are not subject to the same extensive regulations that govern us.

As a result, these non-bank competitors have advantages over
us in providing certain services. We expect competition to increase in the future as a result of legislative, regulatory and technological
changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued
ability to compete successfully in our primary market area and our lending territory. Consolidation and increasing competition
may reduce or limit our margins, net interest income and our market share which could adversely affect our results of operations
and financial condition.

Consumers and businesses may decide
not to use banks to complete their financial transactions.

Technology and other changes are allowing
parties to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example,
consumers can now pay bills and transfer funds directly without banks. This could result in the loss of fee income as well as the
loss of customer deposits and income generated from those deposits and could have a material adverse effect on our financial condition
and results of operations.

38

Risks Related to Regulation and Legislation

Recently enacted legislation, particularly the Dodd-Frank
Act, could materially and adversely affect us by increasing compliance costs, heightening our risk of noncompliance with applicable
regulations, and changing the competitive landscape in the banking industry.

From time to time, the U.S. Congress and state legislatures
consider changing laws and enact new laws to further regulate the financial services industry. On July 21, 2010, President Obama
signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, into law. The Dodd-Frank Act
has resulted in sweeping changes in the regulation of financial institutions. The Dodd-Frank Act contains numerous provisions that
affect all banks and bank holding companies. Many of these provisions remain subject to regulatory rule-making and implementation,
the effects of which are not yet known. Although we cannot predict the specific impact and long-term effects that the Dodd-Frank
Act and the regulations promulgated thereunder will have on us and our prospects, our target markets and the financial industry
more generally, we believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to impose additional administrative
and regulatory burdens that will obligate us to incur additional expenses and will adversely affect our margins and profitability.
We will also have a heightened risk of noncompliance with the additional regulations. Finally, the impact of some of these new
regulations is not known and may affect our ability to compete long-term with larger competitors.

The new Basel III Capital Standards
may have an adverse effect on us.

In July 2013, the Federal Reserve Board
released its final rules which will implement in the United States the Basel III regulatory capital reforms from the Basel Committee
on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final rule, minimum requirements will increase
for both the quality and quantity of capital held by banking organizations. Consistent with the international Basel framework,
the rule includes a new minimum ratio of Common Equity Tier I Capital to Risk-Weighted Assets of 4.5% and a Common Equity Tier
I Capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule
also, among other things, raises the minimum ratio of Tier I Capital to Risk-Weighted Assets from 4% to 6% and includes a minimum
leverage ratio of 4% for all banking organizations. We must begin transitioning to the new rules effective January 1, 2015. The
impact of the new capital rules is likely to require us to maintain higher levels of capital, which will lower our return on equity.

New regulations could adversely impact our earnings due
to, among other things, increased compliance costs or costs due to noncompliance.

The Consumer Financial Protection Bureau has issued a rule, effective
as of January 14, 2014, designed to clarify for lenders how they can avoid monetary damages under the Dodd-Frank Act, which would
hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that satisfy this “qualified
mortgage” safe-harbor will be presumed to have complied with the new ability-to-repay standard. Under the Consumer Financial
Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain specified features, including
but not limited to:

Also, to qualify as a “qualified mortgage,” a borrower’s
total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources
relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum
interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial
Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans
to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact our
growth or profitability.

39

Additionally, on December 10, 2013, five financial regulatory agencies,
including our primary federal regulator, the Federal Reserve, adopted final rules (the “Final Rules”) implementing
the so-called Volcker Rule embodied in Section 13 of the Bank Holding Company Act, which was added by Section 619 of
the Dodd-Frank Act. The Final Rules prohibit banking entities from, among other things, (1) engaging in short-term proprietary
trading for their own accounts, and (2) having certain ownership interests in and relationships with hedge funds or private equity
funds (“covered funds”). The Final Rules are intended to provide greater clarity with respect to both the
extent of those primary prohibitions and of the related exemptions and exclusions. The Final Rules also require each regulated
entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered
by the Volcker Rule, which must include (for the largest entities) making regular reports about those activities to regulators.
Community banks, such as 1st United, have been afforded some relief under the Final Rules. If such banks are engaged
only in exempted proprietary trading, such as trading in U.S. government, agency, state and municipal obligations, they are exempt
entirely from compliance program requirements. Moreover, even if a community bank engages in proprietary trading or covered
fund activities under the rule, they need only incorporate references to the Volcker Rule into their existing policies
and procedures. The Final Rules are effective April 1, 2014, but the conformance period has been extended from its statutory
end date of July 21, 2014 until July 21, 2015. We are currently evaluating the Final Rules, which are lengthy and detailed.

The Federal Reserve’s repeal of the prohibition
against payment of interest on demand deposits (Regulation Q) and the elimination of the FDIC’s TAG program may increase
competition for such deposits and ultimately increase interest expense.

A major portion of our net income comes from our interest
rate spread, which is the difference between the interest rates paid by us on amounts used to fund assets and the interest rates
and fees we receive on our interest-earning assets. Our interest-earning assets include outstanding loans extended to our customers
and securities held in our investment portfolio. We fund assets using deposits and other borrowings. Our goal has been to maintain
non-interest-bearing deposits in the range of 15% to 25% of total deposits, and, as of December 31, 2013 we maintained approximately
34% of deposits as non-interest bearing.

On July 14, 2011, the Federal Reserve issued final rules
to repeal Regulation Q, which had prohibited the payment of interest on demand deposits by institutions that are member banks of
the Federal Reserve System. The final rules implement Section 627 of the Dodd-Frank Act, which repealed Section 19(i) of the Federal
Reserve Act in its entirety effective July 21, 2011. As a result, banks and thrifts are now permitted to offer interest-bearing
demand deposit accounts to commercial customers, which were previously forbidden under Regulation Q. The repeal of Regulation Q
may cause increased competition from other financial institutions for these deposits. If we decide to pay interest on demand accounts,
we would expect our interest expense to increase. Although Regulation Q has been effective for over two years, the impact may not
have been realized yet because of the current zero interest rate policy environment.

We are subject to extensive regulation that could restrict
our activities and impose financial requirements or limitations on the conduct of our business and limit our ability to receive
dividends from the 1st United.

1st United is subject to extensive regulation,
supervision and examination by the Florida Office of Financial Regulation, the Federal Reserve, and the FDIC. Our compliance with
these industry regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions,
investments, loans and interest rates charged, interest rates paid on deposits, access to capital and brokered deposits and locations
of banking offices. If we are unable to meet these regulatory requirements, our financial condition, liquidity and results of operations
would be materially and adversely affected.

1st United must also meet regulatory capital requirements
imposed by our regulators. An inability to meet these capital requirements would result in numerous mandatory supervisory actions
and additional regulatory restrictions, and could have a negative impact on our financial condition, liquidity and results of operations.

In addition to the regulations of the Florida Office of Financial
Regulation, the Federal Reserve, and the FDIC, as a member of the Federal Home Loan Bank, 1st United must also comply
with applicable regulations of the Federal Housing Finance Agency and the Federal Home Loan Bank.

1st United’s activities are also regulated
under consumer protection laws applicable to our lending, deposit and other activities. In addition, the Dodd-Frank Act imposes
significant additional regulation on our operations. Regulation by all of these agencies is intended primarily for the protection
of our depositors and the Deposit Insurance Fund and not for the benefit of our shareholders. Our failure to comply with these
laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us
to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations,
capital base and the price of our securities. Further, any new laws, rules and regulations could make compliance more difficult
or expensive or otherwise adversely affect our business and financial condition. Please refer to the Section entitled “Business
– Regulatory Considerations” in this Annual Report on Form 10-K.

40

Florida financial institutions, such as 1st United,
face a higher risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and
regulations.

Since September 11, 2001, banking regulators have intensified
their focus on anti-money laundering and Bank Secrecy Act compliance requirements, particularly the anti-money laundering provisions
of the USA PATRIOT Act. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets
Control. Since 2004, federal banking regulators and examiners have been extremely aggressive in their supervision and examination
of financial institutions located in the State of Florida with respect to the institution’s Bank Secrecy Act/Anti-Money Laundering
compliance. Consequently, numerous formal enforcement actions have been issued against financial institutions.

In order to comply with regulations, guidelines and examination
procedures in this area, 1st United has been required to adopt new policies and procedures and to install new systems.
If 1st United’s policies, procedures and systems are deemed deficient or the policies, procedures and systems
of the financial institutions that it has already acquired or may acquire in the future are deficient, 1st United would
be subject to liability, including fines and regulatory actions. Such regulatory action may include restrictions on 1st
United’s ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of its
business plan, including its acquisition plans. In addition, because 1st United operates in Florida and because of the
recent acquisitions of Old Harbor Bank and the acquisition of AFI and EBI, we expect that 1st United will face a higher
risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Our eligibility to continue to use a short form registration
statement on Form S-3 may affect our ability to opportunistically access the capital markets.

The ability to conduct primary offerings under a registration
statement on Form S-3 has benefits to issuers who are eligible to use this short form registration statement. Form S-3 permits
an eligible issuer to incorporate by reference its past and future filings and reports made under the Securities Exchange Act of
1934, as amended, or the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings “off the
shelf” under Rule 415 of the Securities Act of 1933, as amended, or the Securities Act. The shelf registration process under
Form S-3, combined with the ability to incorporate information on a forward basis, allows issuers to avoid additional delays and
interruptions in the offering process and to access the capital markets in a more expeditious and efficient manner than raising
capital in a standard registered offering on Form S-1. One of the requirements for Form S-3 eligibility is for an issuer to have
timely filed its Exchange Act reports (including Form 10-Ks, Form 10-Qs and certain Form 8-Ks) for the 12- month period immediately
preceding either the filing of the Form S-3, or a subsequent determination date. If, in the future, we fail to meet the eligibility
requirements for Form S-3 we will lose our ability for a period of time to efficiently and expeditiously access the capital markets
which could adversely impact our financial condition and capital ratios.

Risks Related to Market Events

Our loan portfolio is heavily concentrated in mortgage
loans secured by properties in South and Central Florida which heightens our risk of loss than if we had a more geographically
diversified portfolio.

Our interest-earning assets are heavily concentrated in mortgage
loans secured by properties located in South and Central Florida. As of December 31, 2013, 71.3% of our loans secured by real estate
were secured by commercial and residential properties located in Palm Beach, Miami-Dade, Broward, Hillsborough, Orange and Pasco
Counties, Florida. The concentration of our loans in this region subjects us to risk that a downturn in the area economy, such
as the one the area is currently experiencing, could result in a decrease in loan originations and an increase in delinquencies
and foreclosures. As a result of this concentration, we may face greater risk than if our lending were more geographically diversified.
In addition, since a large portion of our portfolio is secured by properties located in South and Central Florida, the occurrence
of a natural disaster, such as a hurricane, could result in a decline in loan originations, a decline in the value or destruction
of mortgaged properties, and an increase in the risk of delinquencies, foreclosures or loss on loans originated by us. We may suffer
further losses due to the decline in the value of the properties underlying our mortgage loans, which would have an adverse impact
on our operations.

Due to the relatively close proximity of our geographic markets,
we have both geographic concentrations as well as concentrations in the types of loans funded. Specifically, due to the nature
of our markets, a significant portion of the portfolio has historically been secured with real estate. As of December 31, 2013,
approximately 66.8% and 15.8% of our $1.1 billion loan portfolio was secured by commercial real estate and residential real estate
(including home equity loans), respectively. As of December 31, 2013, approximately 3.1% of total loans were secured by property
under construction and land development.

41

The recent downturn in the real estate market, the deterioration
in the value of collateral, and the local and national economic recessions, had adversely affected our customers’ ability
to repay their loans. If these conditions return, then our customers’ ability to repay their loans will be further eroded.
In the event we are required to foreclose on a property securing one of our mortgage loans or otherwise pursue our remedies in
order to protect our investment, we may be unable to recover funds in an amount equal to our projected return on our investment
or in an amount sufficient to prevent a loss to us due to prevailing economic conditions, real estate values and other factors
associated with the ownership of real property. As a result, the market value of the real estate or other collateral underlying
our loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans, and consequently,
we would sustain loan losses.

The fair value of our investments could decline which
would adversely affect our shareholders’ equity.

Our investment securities portfolio as of December 31, 2013
has been designated as available-for-sale pursuant to U.S. GAAP relating to accounting for investments. Such principles require
that unrealized gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and
reflected as a separate item in shareholders’ equity (net of tax) as accumulated other comprehensive income.

Shareholders’ equity will continue to reflect the unrealized
gains and losses (net of tax) of these investments. The fair value of our investment portfolio may decline, causing a corresponding
decline in shareholders’ equity.

Management believes that several factors will affect the
fair values of our investment portfolio. These include, but are not limited to, changes in interest rates or expectations of changes,
the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest
rate yield curve (the yield curve refers to the differences between shorter-term and longer-term interest rates; a positively sloped
yield curve means shorter-term rates are lower than longer-term rates). These and other factors may impact specific categories
of the portfolio differently, and we cannot predict the effect these factors may have on any specific category.

Risks Related to an Investment in our Common Stock

Limited trading activity for shares of our common stock
may contribute to price volatility.

While our common stock is listed and traded on The NASDAQ
Global Select Market, there has been limited trading activity in our common stock. The average daily trading volume of our common
stock in 2013 was approximately 50,996 shares. Due to the limited trading activity of our common stock, relativity small trades
may have a significant impact on the price of our common stock and thereby, the value of your investment in our common stock.

The market price of our common stock may be highly volatile
and subject to wide fluctuations in response to numerous factors, including, but not limited to, the factors discussed in other
risk factors and the following:

§

actual or anticipated fluctuations in our operating results;

§

changes in interest rates;

§

changes in the legal or regulatory environment in which we operate;

§

press releases, announcements or publicity relating to us or our competitors or relating to trends
in our industry;

§

changes in expectations as to our future financial performance, including financial estimates
or recommendations by securities analysts and investors;

§

future sales of our common stock;

§

changes in economic conditions in our marketplace, general conditions in the U.S. economy, financial
markets or the banking industry; and

§

other developments affecting our competitors or us.

Our share ownership is concentrated.

Our officers, directors and principal shareholders, together
with their affiliates, beneficially own approximately 41% of our voting shares. As a result, these few shareholders, even if they
do not act in concert, will exert significant influence over all matters requiring shareholder approval, including the election
and removal of directors, any merger, consolidation or sale of all or substantially all of the assets, as well as any charter amendment
and other matters requiring shareholder approval. This concentration of ownership may delay or prevent a change in control and
may have a negative impact on the market price of the Company’s common stock by discouraging third party investors. In addition,
the interests of these shareholders may not always coincide with the interests of the Company’s other shareholders.

42

Securities research analysts may not initiate coverage
or continue to cover our common stock, and this may have a negative impact on its market price.

The trading market for our common stock will depend in part
on the research and reports that securities analysts publish about us and our business. We do not have any control over these securities
analysts and they may not cover our common stock. If securities research analysts do not cover our common stock, the lack of research
coverage may adversely affect the market price of our common stock. If we are covered by securities analysts and our common stock
is the subject of an unfavorable report, our stock price would likely decline. If one or more of these analysts ceases to cover
us or fails to publish regular reports on us, we could lose visibility in the financial markets, which would cause our stock price
or trading volume to decline.

Our Articles of Incorporation, Bylaws, and certain
laws and regulations may prevent or delay transactions you might favor, including our sale or merger.

We are registered with the Federal Reserve as a financial
holding company under the Gramm-Leach-Bliley Act and are registered with the Federal Reserve as a bank holding company under the
Bank Holding Company Act. As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The Gramm-Leach-Bliley
Act, the Bank Holding Company Act, and other federal laws subject financial holding companies to particular restrictions on the
types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement
actions for violations of laws and regulations.

Provisions of our Articles of Incorporation, Bylaws, certain
laws and regulations and various other factors may make it more difficult and expensive for companies or persons to acquire control
of us without the consent of our Board of Directors. It is possible, however, that you would want a takeover attempt to succeed
because, for example, a potential buyer could offer a premium over the then prevailing price of our common stock.

For example, our Articles of Incorporation permit our Board of Directors
to issue preferred stock without shareholder action. The ability to issue preferred stock could discourage a company from attempting
to obtain control of us by means of a tender offer, merger, proxy contest or otherwise. We are also subject to certain provisions
of the Florida Business Corporation Act and our Articles of Incorporation that relate to business combinations with interested
shareholders. Other provisions in our Articles of Incorporation or Bylaws that may discourage takeover attempts or make them more
difficult include:

§

Supermajority voting requirements to remove a director from office;

§

Requirement that only directors may fill a Board vacancy;

§

Requirement that a special meeting may be called only by a majority vote of our shareholders;

§

Provisions regarding the timing and content of shareholder proposals and nominations;

We are subject to evolving and expensive corporate
governance regulations and requirements. Our failure to adequately adhere to these requirements or the failure or circumvention
of our controls and procedures could seriously harm our business.

As a publicly reporting company, we are subject to certain
federal, state and other rules and regulations, including applicable requirements of the Dodd- Frank Act and Sarbanes-Oxley Act
of 2002. Compliance with these evolving regulations is costly and requires a significant diversion of management time and attention,
particularly with regard to disclosure controls and procedures and internal control over financial reporting. Although we have
reviewed our disclosure and internal controls and procedures in order to determine whether they are effective, our controls and
procedures may not be able to prevent errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the failure
of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the objectives of
the control system are met. A failure of our controls and procedures to detect other than inconsequential errors or fraud could
seriously harm our business and results of operations.

We may be unable to declare and pay dividends in the
future.

We declared a special dividend in December 2012 and December
2013 and also commenced a regular quarterly dividend in 2013. However, the payment of dividends to our shareholders depends largely
upon the ability of 1st United to declare and pay dividends to us, as the principal source of our revenue is from such
dividends. Our ability to declare and pay dividends depend primarily upon earnings, financial condition and need for funds, as
well as governmental policies and regulations applicable to us and 1st United.

1st United is subject to legal limitations on
the frequency and amount of dividends that can be paid to us. The Federal Reserve may restrict the ability of 1st United
to pay dividends if such payments would constitute an unsafe or unsound banking practice. These regulations and restrictions may
limit our ability to obtain funds from 1st United for our cash needs, including funds for acquisitions and the payment
of dividends, interest, and operating expenses.

In addition, Florida law also places restrictions on the
declaration of dividends from state chartered banks to their holding companies. Pursuant to the Florida Financial Institutions
Code, the board of directors of state-chartered banks, after charging off bad debts, depreciation and other worthless assets, if
any, and making provisions for reasonably anticipated future losses on loans and other assets, may quarterly, semi-annually or
annually declare a dividend of up to the aggregate net profits of that period combined with the bank’s retained net profits
for the preceding two years and, with the approval of the Florida Office of Financial Regulation and Federal Reserve, declare a
dividend from retained net profits which accrued prior to the preceding two years. Before declaring such dividends, 20% of the
net profits for the preceding period as is covered by the dividend must be transferred to the surplus fund of the bank until this
fund becomes equal to the amount of the bank’s common stock then issued and outstanding. A state-chartered bank may not declare
any dividend if (i) its net income (loss) from the current year combined with the retained net income (loss) for the preceding
two years aggregates a loss or (ii) the payment of such dividend would cause the capital account of the bank to fall below the
minimum amount required by law, regulation, order or any written agreement with the Florida Office of Financial Regulation or a
federal regulatory agency.

The Company’s ability to pay cash dividends is further
limited by certain restrictions imposed generally on Florida corporations under the Florida Business Corporation Act, specifically,
no cash dividends may be paid if, after payment, (a) the corporation would not be able to pay its debts as they become due in the
usual course of business, or (b) the corporation’s total assets would be less than the sum of its total liabilities plus
the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

As a result of the foregoing laws, regulations and restrictions,
we may be unable to pay additional dividends to our shareholders in the future.

Shares of our common stock are not an insured deposit
and may lose value.

The shares of our common stock are not a bank deposit and
will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk,
and you must be capable of affording the loss of your entire investment.

44

Sales of a significant number of shares of our common
stock in the public markets, or the perception of such sales, could depress the market price of our common stock.

Sales of a substantial number of shares of our common stock
in the public markets and the availability of those shares for sale could adversely affect the market price of our common stock.
In addition, future issuances of equity securities, including pursuant to outstanding options, could dilute the interests of our
existing shareholders, including you, and could cause the market price of our common stock to decline. We may issue such additional
equity or convertible securities to raise additional capital. The issuance of any additional shares of common or preferred stock
or convertible securities could be substantially dilutive to shareholders of our common stock. Moreover, to the extent that we
issue restricted stock units, phantom shares, stock appreciation rights, options or warrants to purchase our common stock in the
future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders
may experience further dilution. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase
their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased
dilution to our shareholders. We cannot predict the effect that future sales of our common stock would have on the market price
of our common stock.

We may issue debt and equity securities or securities
convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which
could negatively affect the value of our common stock.

In the future, we may
attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by all or up
to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured
commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or securities convertible into or exchangeable
for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive
a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt
and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict
or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require
us to accept less favorable terms for the issuance of our securities in the future.

Item 1B. Unresolved Staff Comments

None

45

Item 2. Properties

At December 31, 2013, we operated 22 full service banking
centers in Florida, which includes our principal office in Boca Raton, Florida. In addition, we have an Executive/Operations Center
which we lease in West Palm Beach, Florida. The following table sets forth our banking centers, date opened and whether owned or
leased:

Office Name

Date Opened/Acquired

Own/Lease

Boca Raton (Principal Office)

December 2003

Leased

Cooper City Banking Center

April 2004

Leased

West Palm Beach Banking Center

May 2004

Leased

Palm Beach Banking Center

January 2006

Leased

Coral Springs Banking Center

August 2007

Leased

Ft. Lauderdale Banking Center

February 1987 (1)

Leased

North Miami Banking Center

June 1992 (1)

Leased

Coral Ridge Banking Center

November 2004 (1)(7)

Leased

Vero Beach Banking Center

August 2008 (2)

Owned

Sebastian Banking Center

August 2008(2)

Owned

Barefoot Bay Banking Center

August 2008(2)

Owned

Brickell Bay Banking Center

December 11, 2009(3)

Leased

Doral Banking Center

December 11, 2009(3)

Leased

Coral Way Banking Center

September 2010

Leased

Countryside Banking Center

October 2011(4)

Leased

Dunedin Banking Center

October 2011(4)

Owned

Palm Harbor Banking Center

October 2011(4)

Owned

Fort Harrison Banking Center

April 1, 2012(5)

Leased

Winter Park Banking Center

April 1, 2012(5)

Owned

Kennedy Blvd. Banking Center

April 1, 2012(5)

Owned

Palm Beach Gardens Banking Center

July 1, 2013(6)

Leased

Jupiter Banking Center

July 1, 2013(6)

Leased

(1)

Represents the original open date of the former Equitable Bank Banking Center. Effective with the Equitable Merger on February 29, 2008, these banking centers became 1st United offices.

(2)

Represents banking centers acquired as part of the Citrus acquisition consummated on August 15, 2008.

(3)

Represents banking centers acquired as part of the Republic Federal acquisition consummated on December 11, 2009.

(4)

Represents banking centers acquired as part of the Old Harbor acquisition consummated on October 21, 2011.

(5)

Represents banking centers acquired as part of the AFI acquisition consummated on April 1, 2012.

(6)

Represents banking centers acquired as part of the EBI acquisition consummated on July 1, 2013.

(7)

The Coral Ridge Banking Center was closed on January 10, 2014.

46

Item 3. Legal Proceedings

We are periodically a party to or otherwise involved in legal
proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing
of real property loans, and other issues incident to our business. Management does not believe that there is any pending or threatened
proceeding against us which, if determined adversely, would have a material adverse effect on our financial position, liquidity,
or results of operations.

Our common stock has traded on The NASDAQ Global Market since
September 18, 2009 under the symbol “FUBC”. Since January 1, 2012, our common stock has traded on the NASDAQ Global
Select Market.

We have restrictions on our ability to pay dividends. Please
see Item 1. Business-Regulatory Considerations-Dividends for a discussion of these additional restrictions. As of January 31, 2014,
our common stock was held by approximately 454 shareholders of record.

High

Low

Cash Dividend Per Share

2012

First Quarter

$

6.36

$

5.47

$

0.00

Second Quarter

6.39

5.31

0.00

Third Quarter

6.56

5.40

0.00

Fourth Quarter

6.83

5.30

0.10

(a)

2013

First Quarter

$

6.57

$

6.04

0.00

Second Quarter

6.75

6.13

0.01

Third Quarter

8.15

7.10

0.01

Fourth Quarter

8.15

7.25

0.11

(a)

(a)

Includes a special dividend of $.10 per share.

The following graph and table provide a comparison of the
cumulative total returns for our common stock, the NASDAQ Composite Index and the SNL Southeast Bank Index for the periods indicated.
The graph assumes that an investor originally invested $100 in shares of our common stock at its closing price on September 18,
2009, the first day that our shares were traded. The stock price information below is not necessarily indicative of future price
performance.

Index

09/18/09

12/31/09

12/31/10

12/31/11

12/31/12

12/31/13

1st United Bancorp, Inc.

100.00

125.26

121.23

97.37

111.41

136.20

NASDAQ Composite

100.00

106.69

126.05

125.05

147.25

206.39

SNL Southeast Bank

100.00

88.40

85.83

50.22

83.42

113.04

47

Item 6. Selected Financial Data

The following table presents our summary consolidated financial
data. We derived our balance sheet and income statement data for the years ended December 31, 2013, 2012, 2011, 2010 and 2009 from
our audited financial statements. The summary consolidated financial data should be read in conjunction with, and are qualified
in their entirety by, our financial statements and the accompanying notes and the other information included elsewhere in this
Annual Report.

Use of Non-GAAP Financial Measures

The information set forth below contains certain financial
information determined by methods other than in accordance with generally accepted accounting policies in the United States (“GAAP”).
These non-GAAP financial measures are “tangible assets,” “tangible shareholders’ equity,” “tangible
book value per common share,” and “tangible equity to tangible assets,” Our management uses these non-GAAP measures
in its analysis of our performance because it believes these measures are material and will be used as a measure of our performance
by investors.

“Tangible assets” is defined as total assets reduced
by goodwill and other intangible assets. “Tangible shareholders’ equity” is defined as total shareholders’
equity reduced by goodwill and other intangible assets. “Tangible equity to tangible assets” is defined as tangible
shareholders’ equity divided by tangible assets. These measures are important to many investors in the marketplace who are
interested in the equity to assets ratio exclusive of the effect of changes in intangible assets on equity and total assets.

“Tangible book value per common share” is defined
as tangible shareholders’ equity divided by total common shares outstanding. This measure is important to many investors
in the marketplace who are interested in changes from period to period in book value per share exclusive of changes in intangible
assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing total book
value while not increasing our tangible book value.

These disclosures should
not be considered in isolation or a substitute for results determined in accordance with GAAP, and are not necessarily comparable
to non-GAAP performance measures which may be presented by other bank holding companies. Management compensates for these limitations
by providing detailed reconciliations between GAAP information and the non-GAAP financial measures. A reconciliation table is set
forth below following the selected consolidated financial data.

48

(Dollars in thousands, except per share data)

As of and for the years ended December 31,

2013(a)

2012(b)

2011(c)

2010(d)

2009

BALANCE SHEET DATA

Total assets

$

1,845,113

$

1,568,612

$

1,421,487

$

1,267,181

$

1,013,441

Tangible assets

1,777,315

1,506,845

1,365,722

1,218,884

965,388

Total loans

1,133,980

913,168

879,536

875,931

667,140

Allowance for loan losses

9,648

9,788

12,836

13,050

13,282

Securities available for sale

327,961

260,122

201,722

102,289

88,843

Goodwill and other intangible assets

67,798

61,767

55,765

48,297

48,053

Deposits

1,547,913

1,303,022

1,181,708

1,064,687

802,808

Non-interest bearing deposits

526,311

426,968

329,283

281,285

194,185

Shareholders’ equity

230,108

236,690

215,351

173,488

170,594

Tangible shareholders’ equity

162,310

174,923

159,586

125,191

122,541

INCOME STATEMENT DATA

Interest income

$

79,750

$

72,849

$

60,409

$

45,763

$

28,539

Interest expense

3,790

5,313

6,349

7,745

7,246

Net interest income

75,960

67,536

54,060

38,018

21,293

Provision for loan losses

3,475

6,350

7,000

13,520

13,240

Net interest income after provision for loan losses

72,485

61,186

47,060

24,498

8,053

Gain on acquisition

—

—

—

10,133

20,535

Other non-interest income

(8,250

)

(2,666

)

1,739

4,411

2,427

Non-interest expense

53,272

50,984

42,845

36,429

26,168

Income before income taxes

10,963

7,536

5,954

2,613

4,847

Income tax expense

4,092

2,808

2,282

1,015

1,827

Net income

6,871

4,728

3,672

1,598

3,020

Preferred stock dividends earned

—

—

—

—

(774

)

Net income available to common shareholders

$

6,871

$

4,728

$

3,672

$

1,598

$

2,246

PER SHARE DATA

Basic earnings (loss) per share

$

0.20

$

0.14

$

0.13

$

0.06

$

0.17

Diluted earnings (loss) per share

$

0.20

$

0.14

$

0.13

$

0.06

$

0.17

Cash dividends declared

$

0.13

$

0.10

—

—

—

Dividend payout ratio (f)

65.00

%

72.06

%

—

—

—

Book value per common share

$

6.71

$

6.95

$

7.04

$

7.00

$

6.88

Tangible book value per common share

$

4.73

$

5.13

$

5.22

$

5.05

$

4.94

SELECTED OPERATING RATIOS

Return on average assets

0.41

%

0.31

%

0.28

%

0.15

%

0.46

%

Return on average shareholders’ equity

2.91

%

2.03

%

1.80

%

0.91

%

2.44

%

Net interest margin (e)

5.29

%

5.13

%

4.76

%

4.06

%

3.69

%

SELECTED ASSET QUALITY DATA, CAPITAL AND ASSET QUALITY RATIOS

Equity/assets

12.47

%

15.09

%

15.15

%

13.69

%

16.83

%

Tangible equity/tangible assets

9.13

%

11.61

%

11.69

%

10.27

%

12.69

%

Non-performing loans/total loans

1.40

%

2.56

%

4.94

%

2.60

%

2.34

%

Non-performing assets/total assets

1.87

%

2.74

%

4.01

%

2.38

%

1.60

%

Allowance for loan losses/total loans

0.85

%

1.07

%

1.46

%

1.49

%

1.99

%

Allowance for loan losses/non-performing loans

60.92

%

41.80

%

29.52

%

57.27

%

85.0

%

Net charge-offs average total loans

0.35

%

1.01

%

0.87

%

2.01

%

1.14

%

REGULATORY CAPITAL RATIOS FOR THE COMPANY

Leverage Ratio

9.66

%

11.44

%

11.75

%

11.78

%

12.54

%

Tier 1 Risk-based Capital

14.61

%

21.21

%

23.90

%

21.02

%

23.23

%

Total Risk-based Capital

15.47

%

22.43

%

25.16

%

23.08

%

25.45

%

REGULATORY CAPITAL RATIOS FOR THE BANK:

Leverage Ratio

8.86

%

10.25

%

9.11

%

9.90

%

7.72

%

Tier 1 Risk-based Capital

13.40

%

19.07

%

18.61

%

17.67

%

14.36

%

Total Risk-based Capital

14.27

%

20.27

%

19.87

%

19.73

%

16.59

%

(a)

Includes the acquisition of Enterprise Bancorp, Inc. of Florida effective July 1, 2013.

(b)

Includes the acquisition of Anderen Financial, Inc. effective April 1, 2012.

(c)

Includes the acquisition of Old Harbor Bank of Florida effective October 1, 2011.

(d)

Includes the acquisition of The Bank of Miami, N.A. effective December 17, 2010.

(e)

Includes 1.13%, 0.81%, 0.33%, 0.60% and 0%, respectively related to the resolution of and changes in cash flows on acquired assets.

(f)

Calculated based on dividends declared in period regardless of
period paid.

49

GAAP Reconciliation

(Dollar amounts in thousands, except per share amounts)

As of and for the years ended December 31,

2013

2012

2011

2010

2009

Total assets

$

1,845,113

$

1,568,612

$

1,421,487

$

1,267,181

$

1,013,441

Goodwill

(63,991

)

(58,499

)

(52,505

)

(45,008

)

(45,008

)

Intangible assets, net

(3,807

)

(3,268

)

(3,260

)

(3,289

)

(3,045

)

Tangible Assets

$

1,777,315

$

1,506,845

$

1,365,722

$

1,218,884

$

965,388

Shareholders’ equity

$

230,108

$

236,690

$

215,351

$

173,488

$

170,594

Goodwill

(63,991

)

(58,499

)

(52,505

)

(45,008

)

(45,008

)

Intangible assets, net

(3,807

)

(3,268

)

(3,260

)

(3,289

)

(3,045

)

Tangible shareholders’ equity

$

162,310

$

174,923

$

159,586

$

125,191

$

122,541

Book value per common share

$

6.71

$

6.95

$

7.04

$

7.00

$

6.88

Effect of intangible assets

(1.98

)

(1.82

)

(1.82

)

(1.95

)

(1.94

)

Tangible book value per common share

$

4.73

$

5.13

$

5.22

$

5.05

$

4.94

Equity to total assets

12.47

%

15.09

%

15.15

%

13.69

%

16.83

%

Effect of intangible assets

(3.34

)

(3.48

)

(3.46

)

(3.42

)

(4.14

)

Tangible equity/tangible assets

9.13

%

11.61

%

11.69

%

10.27

%

12.69

%

Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

Management’s discussion and analysis (“MD&A”)
provides supplemental information, which sets forth the major factors that have affected our financial condition and results of
operations and should be read in conjunction with the Consolidated Financial Statements and related notes included in the Annual
Report on Form 10-K. The MD&A is divided into subsections entitled “Business Overview,” “Financial Overview,”
“Financial Condition,” “Results of Operations,” “Interest Rate Risk Management,” “Liquidity
and Capital Resources,” “Off-Balance Sheet Arrangements,” and “Critical Accounting Policies.” The
following information should provide a better understanding of the major factors and trends that affect our earnings performance
and financial condition, and how our performance during 2013 compared with prior years. Throughout this section, 1st United
Bancorp, Inc., and its subsidiaries, collectively, are referred to as “Company,” “we,” “us,”
or “our.” Unless the context indicates otherwise, all dollar amounts in this MD&A are in thousands.

CAUTION CONCERNING FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K, including this MD&A
section, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors,
many of which are beyond our control. The words “may,” “could,” “should,” “would,”
“believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject
to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements.
Please see the Introductory Note and Item 1A Risk Factors of this Annual Report for a discussion of factors that could cause
our actual results to differ materially from those in the forward-looking statements.

However, other factors besides those listed in Item 1A
Risk Factors or discussed in this Annual Report also could adversely affect our results, and you should not consider any such
list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our
behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required
by applicable law.

50

Business Overview

We are a financial holding company headquartered in Boca Raton,
Florida. Our principal subsidiary, 1st United, is a Florida-chartered commercial bank, which operates 21 banking centers
in Florida, from Central Florida through the Treasure Coast to South Florida, including Brevard, Broward, Hillsborough, Indian
River, Miami-Dade, Orange, Palm Beach, and Pinellas Counties.

Over the past ten years, we have grown under the stewardship
of our highly experienced executive management team. Specifically, we have:

▪

increased total assets from $66.8 million to $1.845 billion;

▪

increased total net loans from $39.6 million to $1.125 billion;

▪

grown non-interest bearing deposits from $4.6 million to $526.3 million; and

▪

expanded our branch network from one location to 21 locations.

We follow a business plan that emphasizes the delivery of
commercial banking services to businesses and individuals in our geographic market who desire a high level of personalized service.
The business plan includes business banking, professional market services, real estate lending and private banking, as well as
full community banking products and services. The business plan also provides for an emphasis on our Small Business Administration
lending program, as well as on small business lending. We focus on the building of a balanced loan and deposit portfolio, with
emphasis on low cost liabilities and variable rate loans.

As is the case with banking institutions generally, our operations
are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial
institution regulatory agencies, including the Federal Reserve Bank and the FDIC. Deposit flows and costs of funds are influenced
by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand
for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing
may be offered and other factors affecting local demand and availability of funds. We face strong competition in the attraction
of deposits (our primary source of lendable funds) and in the origination of loans.

We have experienced a high volume of bankruptcy filings in
Florida during recent years. According to the most recent data available from the U.S. Federal Courts, Florida had the second highest
number of bankruptcy filings in the United States through the first three quarters of 2013. Only California experienced more bankruptcy
filings. The majority of the filings in Florida were non-business bankruptcies.

Based on data from the U.S. Census Bureau, from 2006
through the end of 2010, median household income decreased by 3.1% in Florida. Additionally, real estate property valuations
have also been depressed during the recent economic downturn as evidenced by our higher level of problem assets and
credit-related costs. According to the Federal Housing Finance Agency, Florida experienced negative trends in single-family
home prices (as indicated by negative housing price indexes) in nearly every quarter beginning with the second quarter of
2007 through the end of 2011 with positive housing price indexes through the end of 2013. Economic conditions such a high
unemployment, high volumes of non-business bankruptcy filings, decreased median household income, and depressed real estate
values all affect the value of our loan portfolio and the associated risks. While general economic conditions have stabilized
in the state of Florida, a relapse of the recession or an economic downturn in Florida would likely exacerbate the adverse
effects of these difficult market conditions on our clients, which would likely have a negative impact on our financial
results.

We intend to continue to opportunistically expand and grow
our business by building on our business strategy and increasing market share in key Florida markets. We believe the demographics
and growth characteristics within the communities we serve will provide significant franchise enhancement opportunities to leverage
our core competencies while acquisitive growth will enable us to take advantage of the extensive infrastructure and scalable platform
that we have assembled.

51

A significant portion of our growth has been through acquisitions.
Under our current management team, we have consummated eight transactions since 2004:

Acquired Bank

Headquarters

Year Acquired

First Western Bank

Cooper City, Florida

2004

Equitable Bank

Fort Lauderdale, Florida

2008

Citrus Bank, N.A.(1)

Vero Beach, Florida

2008

Republic Federal Bank, N.A. (2)

Miami, Florida

2009

The Bank of Miami, N.A.(2)

Miami, Florida

2010

Old Harbor Bank of Florida (2)

Clearwater, Florida

2011

Anderen Financial, Inc.

Palm Harbor, Florida

2012

Enterprise Bancorp, Inc.

North Palm Beach, Florida

2013

(1)

Branch acquisition

(2)

FDIC-assisted transaction

Enterprise Bancorp, Inc.

On July 1, 2013, the Company completed its acquisition
of Enterprise Bancorp, Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of
Florida, a Florida-chartered commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the
“EBI Merger Agreement”), dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and
Enterprise. In accordance with the EBI Merger Agreement, the Company acquired EBI through the merger of a wholly-owned
subsidiary of the Company with and into EBI and 1st United Bank acquired Enterprise Bank through the merger of Enterprise
Bank with and into 1st United Bank (collectively, the “EBI Merger”).

Pursuant to the terms of the EBI Merger Agreement, each share
of EBI common stock issued and outstanding was converted into the right to receive consideration based on EBI’s total consolidated
assets and the EBI Tangible Book Value (as defined in the EBI Merger Agreement) as of June 30, 2013. The total value of the consideration
paid to EBI shareholders was approximately $45.6 million, which consisted of approximately $5.1 million in cash (less the $400,000
holdback described below), $22.1 million in loans (including all nonperforming loans), other real estate, and repossessed assets
of Enterprise and $18.3 million in impaired and below investment grade securities and other investments of Enterprise. Each holder
of a share of EBI common stock was entitled to consideration from the Company equal to approximately $6.01 per share (less their
per share pro rata portion of the $400,000 holdback described below). The total consideration paid to all EBI shareholders in connection
with the Merger was subject to a holdback amount of $400,000 to defray potential damages and related expenses incurred to defend
or settle certain litigation. The Company does not anticipate the litigation and related costs will exceed the $400,000. The Company
recorded goodwill associated with the transaction of approximately $5.5 million which is not deductible for tax purposes. The Company
acquired a net deferred tax liability of $233,000 and recorded a deferred tax asset in other assets as a result of purchase accounting adjustments.

The Company accounted for the transaction under the acquisition
method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at
the date of acquisition. See Note 4 of the Notes to the Consolidated Financial Statements for additional information related to
the fair value of loans acquired. The Company determined the fair value of core deposit intangibles, securities, and deposits with
the assistance of third party valuations. The valuation of FHLB advances was based on current rates for similar borrowings. The
estimated fair values are subject to refinement as additional information relative to the closing date fair values becomes available
through the measurement period.

Anderen Financial, Inc.

On April 1, 2012, we completed our acquisition of
Anderen Financial, Inc., a Florida corporation and its wholly-owned subsidiary Anderen Bank, a Florida-chartered commercial
bank (collectively referred to herein as “AFI”), pursuant to the Agreement and Plan of Merger (Anderen Merger
Agreement”), dated October 24, 2011. Pursuant to the terms of the Anderen Merger Agreement, each outstanding share of
AFI common stock, $0.01 par value per share, was cancelled and automatically converted into the right to receive cash, common
stock of the Company or a combination of cash and common stock of the Company. AFI shareholders could elect to receive cash,
stock, or a combination of 50% cash and 50% stock, provided, however, that each election was subject to mandatory allocation
procedures to ensure the total consideration was approximately 50% cash and 50% stock. The value of the AFI per share
consideration was $7.73 calculated per the Anderen Merger Agreement. The total value of the consideration paid to AFI
shareholders was $38.3 million which consisted of approximately $19.1 million in cash and 3,140,354 shares of the
Company’s common stock. The Company’s common stock was valued at $6.09 per share with a total value of $19.1
million, net of approximately $61,000 of costs. The Company recorded goodwill of $5.8 million as a result of the merger which
is not deductible for tax purposes. Total net deferred tax assets acquired was $5.9 million, primarily related to loss carry
forwards. The Company completed the integration of AFI in June 2012.

52

The Company accounted for the transaction under the acquisition
method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at
the date of acquisition. See Note 4 of the Notes to the Consolidated Financial Statement for additional information related to
the fair value of loans acquired. The Company uses third party valuations to determine the fair value of the core deposit intangible,
securities, fixed assets and deposits. The fair value of other real estate owned was based on recent appraisals of the properties.
The estimated fair value are subject to refinement as additional information relative to the closing date fair values. The
Company updated the previously reported consolidated balance sheet for the year ended December 31, 2012 for the final measurement
period adjustments.

Financial Overview

▪

Net earnings for the year ended December 31, 2013 were $6.9 million compared to net
earnings of $4.7 million in 2012. Operating results for the year ended December 31, 2013 when compared to the year ended
December 31, 2012 were impacted by the EBI Merger in July 2013 and net loan growth of $61.3 million for the year ended
December 31, 2013.

▪

Net interest margin increased to 5.29% for the year ended December 31, 2013 compared to
5.13% for the year ended December 31, 2012. Excluding interest accretion related to the resolution of and changes
in cash flows on acquired assets, our net interest margin would have been 4.16% and 4.32% for the years ended December
31, 2013 and 2012, respectively.

▪

The Company recorded provisions for loan losses of $3.5
million for the year ended December 31, 2013 as compared to $6.4 million for the year ended December 31, 2012.

▪

During the year ended December 31, 2013, we incurred approximately $1.7 million in personnel, IT and facilities costs and merger reorganization expense that related to the integration of EBI. During the year ended December 31, 2012, we incurred approximately $1.8 million in personnel, IT, facilities and merger reorganization expense related to the integrations of AFI and Old Harbor.

▪

Non-performing assets at December 31, 2013 represented 1.87% of total assets compared to 2.74% at December 31, 2012. Non-performing assets not covered by the Loss Sharing Agreements represented 0.91% of total assets at December 31, 2013 compared to 1.17% at December 31, 2012.

▪

Total assets increased to $1.845 billion at December 31, 2013 from $1.569 billion at
December 31, 2012 primarily due to the EBI acquisition. In addition, at December 31, 2013 we had a short term deposit of
approximately $128 million that was deposited in December 2013 and subsequently paid out in January, 2014.

▪

Securities available for sale increased by approximately $67.8 million from $260.1 million at December 31, 2012 to $328.0 million at December 31, 2013. The increase was a result of the Company investing excess liquidity of approximately $174.4 million primarily in residential mortgage backed securities during the year ended December 31, 2013, as well as the acquisition of $4.0 million of residential mortgage backed securities from EBI, which was offset by sales of $33.7 million, maturities and principal payments of $57.5 million and an increase in the unrealized loss on securities held of $16.9 million.

▪

Net loans increased by approximately $221.0 million to $1.125 billion at December 31, 2013 from $903.6 million at December 31, 2012. The change was due to the acquisition of $159.2 million of loans in connection with the acquisition of EBI as well as new loan production of $336.6 million which was offset by payoffs and resolutions of $275.3 million during the year.

53

▪

Other real estate owned decreased by $949,000 to $18.6 million from $19.5 million at December 31, 2012. The change was due to the foreclosure of $8.4 million of loans, OREO proceeds from sales of $9.4 million, net of a $1.1 million gain for the year ended December 31, 2013 and write-downs on properties due to updated fair values of $1.1 million. At December 31, 2013, we had $1.1 million in OREO under contract for sale.

▪

FDIC loss share receivable was reduced by approximately $19.2 million from $48.6
million at December 31, 2012 to $29.3 million at December 31, 2013. The decrease was due to cash receipts from the
FDIC of approximately $6.5 million and approximately $15.8 million related to adjustments resulting from the disposition of
acquired loans at above their discounted carrying values and the impact of changes in anticipated cash flows offset by accretion
of income on the receivable of $574,000.

▪

Deposits increased by $244.9 million from $1.303 billion at December 31, 2012 to $1.548
billion at December 31, 2013 due primarily from the acquisition of $177.2 million in deposits from the EBI Merger and one
customer deposit of $128.0 million received in December 2013 and withdrawn in January 2014, offset by anticipated runoff of
acquired higher cost time deposits and money market accounts. The percentage of non-interest bearing deposits to total
deposits was approximately 34% at December 31, 2013 compared to approximately 33% at December 31, 2012.

▪

Federal Home Loan Bank Advances were $35.0 million at December
31, 2013 and were assumed in connection with the EBI Merger. There were no Federal Home Loan Bank Advances at December 31, 2012.

▪

Total shareholders’ equity decreased to $230.1 million at December 31, 2013 from
$236.7 million at December 31, 2012. The change was due to net unrealized losses on securities available for
sale in accumulated other comprehensive income (loss) of $8.3 million at December 31, 2013 from a net unrealized gain on
securities available for sale of $2.3 million at December 31, 2012. The decrease in accumulated other
comprehensive income (loss) was partially offset by net income for the year ended December 31, 2013 of $6.9
million.

Financial Condition

At December 31, 2013, our total assets were $1.845
billion and our net loans were $1.125 billion or 61.0% of total assets. At December 31, 2012, our total assets were $1.569
billion and our net loans were $903.6 million or 57.7% of total assets. The increase in net loans from December 31, 2012 to
December 31, 2013 was $221.0 million or 24.5%. These increases were attributed to the EBI Merger which added approximately
$159.2 million in net loans. During the year ended December 31, 2013, we had new loan production and fundings of
approximately $336.6 million which was offset by payoffs, sales, pay downs and charge-offs of $275.3 million.

At December 31, 2013, the allowance for loan losses was $9.6
million or 0.85% of total loans. At December 31, 2012, the allowance for loan losses was $9.8 million or 1.07% of total loans.

At December 31, 2013, our total deposits were $1.548
billion, an increase of $244.9 million (18.8%) over December 31, 2012 of $1.303 billion. The increase was mainly due to the
EBI Merger in July 1, 2013, which added approximately $177.2 million in deposits as of December 31, 2013 and one customer
deposit of $128.0 million received in December 2013 and withdrawn in January 2014 offset by anticipated runoff of acquired
higher cost time deposits and money market accounts. Non-interest bearing deposits represented 34.0% of total deposits at
December 31, 2013 compared to 32.8% at December 31, 2012.

There were $35.0 million in Federal Home Loan Bank advances
as of December 31, 2013 which compares to no Federal Home Loan Bank advances as of December 31, 2012. The Federal Home Loan Bank
advances were assumed as part of the EBI Merger.

Refer to Part 1, Item 1. Business for a discussion of our
investment portfolio, loan portfolio, deposits and borrowings.

54

Results of Operations

We recorded net earnings of $6.9 million for the year ended
December 31, 2013, compared to net earnings of $4.7 million for the year ended December 31, 2012. Income for the year ended December
31, 2013 was positively impacted by the EBI acquisition in July 2013, an increase in interest income due to net loan growth and
purchases of securities available for sale and a reduction in the provision for loan losses year-over year offset by an increase
in non-interest expense due to the disposal of two banking centers and equipment and write-downs to our other real estate owned
portfolio due to updated appraisals received during 2013.

We recorded net earnings of $4.7 million for the year ended
December 31, 2012, compared to net earnings of $3.7 million for the year ended December 31, 2011. Income for the year ended December
31, 2012 was impacted by the Old Harbor acquisition at the end of 2011 as well as the AFI acquisition in April 2012. Income for
the year ended December 31, 2012 was also impacted by a reduction in the provision for loan losses year-over year of $650,000 as
well as salary, occupancy, data processing and integration expenses of $1.8 million related to the Old Harbor and AFI acquisitions
incurred in the year ended December 31, 2012 as compared to $1.1 million in such costs incurred in the year ending December 31,
2011 related to the TBOM and Old Harbor acquisitions. Overall operating expenses increased by $8.1 million in 2012 primarily as
a result of the Old Harbor acquisition in October 2011 as well as the AFI acquisition in April 2012.

Net Interest Income

Net interest income, which constitutes the principal source
of our income, represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities.
The principal interest-earning assets are federal funds sold, investment securities, and loans. Interest-bearing liabilities primarily
consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits, money market accounts,
FHLB borrowings, and repurchase agreements. Funds attracted by these interest-bearing liabilities are invested in interest-earning
assets. Accordingly, net interest income depends upon the volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.

The following table reflects the components of net interest
income, setting forth for the periods presented, (1) average assets, liabilities and shareholders’ equity, (2) interest income
earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning
assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning
assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest
earning assets).

55

Net interest earnings for the years ended December 31,
2013 and 2012 are reflected in the following table:

(Dollars in thousands)

Year ended

December 31, 2013

December 31, 2012

Average Balance

Interest Income/ Expense

Average Rates Earned/ Paid

Average Balance

Interest Income/ Expense

Average Rates Earned/ Paid

Assets

Interest-earning assets

Loans (a)

$

1,023,001

$

71,948

7.03

%

$

931,807

$

66,929

7.18

%

Investment securities

325,510

7,153

2.20

%

216,039

5,106

2.36

%

Federal funds sold and securities purchased under resale agreements

88,018

649

0.74

%

169,909

814

0.48

%

Total interest earning assets

1,436,529

79,750

5.55

%

1,317,755

72,849

5.53

%

Non-interest earning assets

229,978

225,917

Allowance for loan losses

(10,019

)

(11,381

)

Total Assets

$

1,656,488

$

1,532,291

Liabilities

Interest-bearing liabilities

NOW accounts

$

206,527

$

262

0.13

%

$

154,687

$

233

0.15

%

Money market accounts

343,377

1,073

0.31

%

338,242

1,569

0.46

%

Savings accounts

62,792

165

0.26

%

63,736

194

0.30

%

Certificates of deposit

296,983

2,180

0.73

%

336,970

3,296

0.98

%

Repos

15,824

17

0.11

%

11,779

14

0.12

%

Other borrowings

18,623

93

0.50

%

137

7

5.11

%

Total interest-bearing liabilities

944,126

3,790

0.40

%

905,551

5,313

0.59

%

Non-interest-bearing liabilities

Demand deposit accounts

467,445

385,066

Other liabilities

8,766

8,562

Total non-interest-bearing liabilities

476,211

393,628

Shareholders’ Equity

236,151

233,112

Total Liabilities and Shareholders’ Equity

$

1,656,488

$

1,532,291

Net interest spread

$

75,960

5.15

%

$

67,536

4.94

%

Net interest on average earning assets-Margin (b)

5.29

%

5.13

%

(a)

Average loans include non-performing loans. Interest on loans includes loan origination fees of $678,000 in 2013, and $490,000 in 2012.

(b)

Net interest margin is net interest income divided by average total interest-earning assets.

56

Our net interest income for the year ended December
31, 2013 was positively impacted by an increase in average earning assets of $118.8 million or 9.0% as compared to the year
ended December 31, 2012 primarily due to increases in loans from the EBI acquisition as well as net organic loan growth and
an increase in investment securities. Earnings were also positively impacted by the accretion of discounts related to
acquired loans of approximately $22.3 million for the year ended December 31, 2013 as compared to $19.7 million for the
same period in 2012. Included in the $22.3 million of accretion of discount in 2013 was approximately $16.2 million related
to the disposition of assets acquired in the transactions above the discounted purchase price of the asset and accretion
of discounts on purchased credit impaired loans due to increases in estimated cash flows. For the year ended December
31, 2013, we took a charge of approximately $15.8 million, including $1.0 million related to the resolution of other real
estate owned, as an adjustment to the FDIC receivable. This charge was recorded in non-interest income in the
consolidated statements of operations and was substantially related to changes in cash flows of loss share assets. Included
in the $19.7 million of accretion of discount in 2012 was approximately $10.7 million related to the disposition of assets
acquired in the transactions above the discounted purchase price of the asset. For the year ended December 31, 2012, we took
a charge of approximately $13.7 million, including $3.4 million related to the resolution of other real estate owned, as an
adjustment to the FDIC receivable. This charge was recorded in non-interest income within the consolidated statements of
operations and was substantially related to changes in cash flows of loss share assets.

Net interest income was $76.0 million for year ended
December, 2013, as compared to $67.5 million for the year ended December 31, 2012, an increase of $8.4 million or 12.5%. The
increase resulted primarily from an increase in average earning assets of $118.8 million or 9.0% primarily a result of the
EBI acquisition, net organic loan growth, an increase in accretion income on acquired loans and a reduction in our average
cost of funds.

The net interest margin (i.e., net interest income divided
by average earning assets) increased 16 basis points from 5.13% during the year ended December 31, 2012 to 5.29% during the year
ended December 31, 2013, primarily due to a reduction in the yield on our interest bearing deposits. Our cost of funds was approximately
27 basis points for the year ended December 31, 2013, as compared to 41 basis points in 2012, primarily as a result of lower
rates on money market and certificate of deposit accounts. Accretion of $22.3 million on acquired loans added approximately
156 basis points to the net interest margin for the year ended December 31, 2013; of this amount, $16.2 million or 113 basis points
related to resolved loss share assets and changes in cash flows during the year ended December 31, 2013. This compares to accretion
of loan discount of $19.7 million during the year ended December 31, 2012, which added approximately 150 basis points to the December 31,
2012 margin. Of this amount, $10.7 million or 81 basis points related to resolved loss share assets and changes in cash flows
during the year ended December 31, 2012.

For the year ended December 31, 2013, average loans represented
71.2% of total average interest-earning assets and 73.4% of total average deposits and customer repurchase agreements, compared
to average loans to total average interest-earning assets of 70.71% and average loans to total average deposits and customer repurchase
agreements of 72.2% at December 31, 2012.

57

Net interest earnings for the years ended December 31, 2012
and 2011 are reflected in the following table:

(Dollars in thousands)

Years ended

December 31, 2012

December 31, 2011

Average Balance

Interest Income/ Expense

Average Rates Earned/ Paid

Average Balance

Interest Income/ Expense

Average Rates Earned/ Paid

Assets

Interest-earning assets

Loans (a)

$

931,807

$

66,929

7.18

%

$

831,830

$

55,311

6.65

%

Investment securities

216,039

5,106

2.36

%

147,608

4,362

2.96

%

Federal funds sold and securities purchased under resale agreements

169,909

814

0.48

%

156,842

736

0.47

%

Total interest earning assets

1,317,755

72,849

5.53

%

1,136,280

60,409

5.32

%

Non-interest earning assets

225,917

180,407

Allowance for loan losses

(11,381

)

(13,438

)

Total Assets

$

1,532,291

$

1,303,249

Liabilities

Interest-bearing liabilities

NOW accounts

$

154,687

$

233

0.15

%

$

125,267

$

222

0.18

%

Money market accounts

338,242

1,569

0.46

%

278,104

2,192

0.79

%

Savings accounts

63,736

194

0.30

%

44,696

238

0.53

%

Certificates of deposit

336,970

3,296

0.98

%

297,806

3,339

1.12

%

Repos

11,779

14

0.12

%

11,998

16

0.13

%

Other borrowings

137

7

5.11

%

9,053

342

3.78

%

Total interest-bearing liabilities

905,551

5,313

0.59

%

766,924

6,349

0.83

%

Non-interest-bearing liabilities

Demand deposit accounts

385,066

325,277

Other liabilities

8,562

7,187

Total non-interest-bearing liabilities

393,628

332,464

Shareholders’ Equity

233,112

203,861

Total Liabilities and Shareholders’ Equity

$

1,532,291

$

1,303,249

Net interest spread

$

67,536

4.94

%

$

54,060

4.49

%

Net interest on average earning assets-Margin (b)

5.13

%

4.76

%

(a)

Average loans include non-performing loans. Interest on loans includes loan fees of $490,000 in 2012 and $301,000 in 2011.

Our net interest income for the year ended December 31, 2012
was positively impacted by an increase in average earning assets of $181.5 million or 16.0% as compared to the year ended December
30, 2011 primarily due to increases in loans acquired in the AFI and Old Harbor acquisitions as well as increases in investments
due to net purchases through 2012 and the acquisition of investments from our merger with AFI. Earnings were also positively impacted
by the accretion of discounts related to acquired loans of approximately $19.7 million for the year ended December 31, 2012 as
compared to $11.8 million for the same period in 2011. Included in the $19.7 million of accretion of discount in 2012 was approximately
$10.7 million related to the disposition of assets acquired in the transactions above the discounted purchase price of the asset.
For the year ended December 31, 2012, we took a charge of approximately $13.7 million, including $3.4 million related to the resolution
of other real estate owned, as an adjustment to the FDIC receivable. This charge was recorded in non-interest income in within
the consolidated statements of operations and was substantially related to changes in cash flows of loss share assets.

Included in the $11.8 million of accretion of discount in
2011 was approximately $4.3 million related to the disposition of assets acquired in the transactions above the discounted purchase
price of the asset. For the year ended December 31, 2011, we took a charge of approximately $3.8 million related to resolved loans
as an adjustment to the FDIC receivable. This charge was recorded in non-interest income in within the consolidated statements
of operations and was substantially related to changes in cash flows of loss share assets.

Net interest income was $67.5 million for year ended December,
2012, as compared to $54.1 million for the year ended December 31, 2011, an increase of $13.5 million or 24.9%. The increase resulted
primarily from an increase in average earning assets of $181.5 million or 16.0% primarily due to the AFI and Old Harbor acquisitions
as well as a reduction in our average cost of funds.

The net interest margin (i.e., net interest income
divided by average earning assets) increased 37 basis points from 4.76% during the year ended December 31, 2011 to 5.13%
during the year ended December 31, 2012, due to an increase in the yield earned on assets of 21 basis point coupled with a
decrease of our cost of funds during the year as well as an increase in accretion income during the year. Our cost of funds
was approximately 41 basis points for the year ended December 31, 2012, as compared to 58 basis points in 2011,
primarily as a result of lower rates in the renewal of time deposits. Accretion of $19.7 million on acquired loans added
approximately 150 basis points to the net interest margin for the year ended December 31, 2012; of this amount, $10.7 million
or 81 basis points related to resolved loss share assets and changes in cash flows during the year ended December 31, 2012.
This compares to accretion of loan discount of $11.8 million during the year December 31, 2011, which added approximately 104
basis points to the December 31, 2011 margin. Of this amount, $4.3 million or 38 basis points related to resolved loss
share assets and changes in cash flows during the year ended December 31, 2011.

For the year ended December 31, 2012, average loans represented
70.71% of total average interest-earning assets and 72.2% of total average deposits and customer repurchase agreements, compared
to average loans to total average interest-earning assets of 73.21% and average loans to total average deposits and customer repurchase
agreements of 76.80% at December 31, 2011.

58

Rate Volume Analysis

The following table sets forth certain information regarding
changes in our interest income and interest expense for the year ended December 31, 2013, as compared to the year ended December
31, 2012, and the year ended December 31, 2012 as compared to the year ended December 31, 2011. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes attributable to changes in interest rate and changes
in the volume. Changes in both volume and rate have been allocated based on the proportionate absolute changes in each category.

Changes in interest earnings for the years ended December
31, 2013 and 2012 were as follows:

(Dollars in thousands)

Years ended December 31, 2013 and 2012

Change in Interest Income/ Expense

Variance Due to Volume Changes

Variance Due to Rate Changes

Assets

Interest-earning assets

Loans

$

5,019

$

6,438

$

(1,419

)

Investment securities

2,047

2,428

(381

)

Federal funds sold and securities purchased under resale agreements

(165

)

(492

)

327

Total interest-earning assets

$

6,901

$

8,374

$

(1,473

)

Liabilities and Shareholders’ Equity

Interest-bearing liabilities

NOW accounts

$

29

$

70

$

(41

)

Money market accounts

(496

)

23

(519

)

Savings accounts

(29

)

(3

)

(26

)

Certificates of deposit

(1,116

)

(360

)

(756

)

Federal funds purchased and repos

3

4

(1

)

Other borrowings

86

98

(12

)

Total interest-bearing liabilities

$

(1,523

)

$

(168

)

$

(1,355

)

Net interest spread

$

8,424

$

8,542

$

(118

)

Changes in interest earnings for the years ended December
31, 2012 and 2011 were as follows:

(Dollars in thousands)

Years ended December 31, 2012 and 2011

Change in Interest Income/ Expense

Variance Due to Volume Changes

Variance Due to Rate Changes

Assets

Interest-earning assets

Loans

$

11,618

$

6,968

$

4,650

Investment securities

744

1,739

(995

)

Federal funds sold and securities purchased under resale agreements

78

62

16

Total interest-earning assets

$

12,440

$

8,769

$

3,671

Liabilities and Shareholders’ Equity

Interest-bearing liabilities

NOW accounts

$

11

$

47

$

(36

)

Money market accounts

(623

)

407

(1,030

)

Savings accounts

(44

)

80

(124

)

Certificates of deposit

(43

)

411

(454

)

Federal funds purchased and repos

(2

)

—

(2

)

Other borrowings

(335

)

(424

)

89

Total interest-bearing liabilities

$

(1,036

)

$

521

$

(1,557

)

Net interest spread

$

13,476

$

8,248

$

5,228

59

Provision for Loan Losses

The provision for loan losses is charged to earnings to bring
the allowance for loan losses to a level deemed adequate by management and is based upon anticipated experience, the volume and
type of lending conducted by us, the amounts of past due and non-performing loans, general economic conditions, particularly as
they relate to our market area, and other factors related to the collectability of our loan portfolio. For the year ended December
31, 2013, the provision for loan losses was $3.5 million as compared to $6.4 million for the year ended December 31, 2012 and $7.0
million for the year ended December 31, 2011. The decrease in the provision for loan losses between the years ended December 31,
2013 and 2012 was due to a reduction in charge-offs as a result of a decrease in impaired and classified loans period-over-period
and continued stabilization in changes in the fair values on the underlying collateral on impaired loans. Total charge-offs for
the year ended December 31, 2013 were $3.8 million as compared to $9.8 million for the year ended December 31, 2012. During the
year ended December 31, 2012, the Company strategically resolved an $11.4 million non-performing loan collateralized by 15 gas
stations through acceptance of a bulk sale offer at below appraised values. The resolution resulted in a $5.4 million charge-off
during the year.

The decrease in the provision for loan losses between the
years ended December 31, 2012 and December 31, 2011 was due to a decrease in special mention loans of $13.9 million since December
31, 2011 which have a higher allocation of general reserve, coupled with the improvement in the historic loss factor associated
with construction and land development loans. Total charge-offs for the year ended December 31, 2012 were $9.8 million as compared
to $7.4 million for the year ended December 31, 2011.

As of December 31, 2013 and 2012, the allowance for loan
losses was 0.85% and 1.07%, respectively, of total loans. As of December 31, 2013 and 2012, the allowance for loan losses to non-accrual
loans was 60.9% and 45.9%, respectively. The change in the allowance as a percentage of non-accrual loans over the prior
year is primarily due to the continued timely charge-off of specific assets and resolution of impaired loans. The Company obtains
new appraisals annually for all non-accruing loans and provides specific reserves when values less disposal costs are less than
the carrying value of the loans. Specific reserves are generally charged off at the earlier of resolution or within one year.

60

Non-Interest Income

The following is a schedule of non-interest income for the
years ended December 31, 2013, 2012, and 2011:

(Dollars in thousands)

Years ended December 31,

2013

2012

2011

Service charges and fees on deposit accounts

$

3,332

$

3,451

$

3,581

Net gains (losses) on sales of other real estate owned

1,133

3,278

(264

)

Net gains on sales of securities

824

1,673

364

Net gains on sales of loans held for sale

58

106

58

Increase in cash surrender value of Company owned life insurance

618

498

151

Adjustment to FDIC loss share receivable

(15,250

)

(12,488

)

(3,236

)

Other

1,035

816

1,085

$

(8,250

)

$

(2,666

)

$

1,739

Year Ended December 31, 2013, compared
to Year Ended December 31, 2012

Non-interest income includes service charges and fees on
deposit accounts, net gains on the sales of securities available for sale and other real estate owned and all other items of income,
other than interest, resulting from our business activities.

Non-interest income decreased to a net charge of $8.3 million
for the year ended December 31, 2013 from a net charge of $2.7 million for the year ended December 31, 2012. The change was due
to an increase in adjustments to reduce the FDIC loss share receivable during the year ended December 31, 2013 as compared to the
same period in 2012 due to increased resolutions, including sales, payoffs and transfers to other real estate owned, of acquired
assets in excess of fair value and changes in cash flows of loss share assets, reduced gains on the sales of other real estate
owned and securities available for sale offset by an increase in the earnings on Company owned life insurance.

Service charges on deposit accounts decreased by $119,000
or 3.4% for the year ended December 31, 2013, as compared to the year ended December 31, 2012. This decrease was due to the change
in the mix and level of transactions on customer accounts year-over-year.

For the year ending
December 31, 2013, the Bank sold OREO properties with a carrying value of $8.2 million and recorded net gains on the disposition
of $1.1 million as compared to sales of OREO with a carrying value of $24.1 million for net gains of $3.3 million for the year
ended December 31, 2012. Net gains related to the resolution of OREO covered under Loss Sharing Agreements was $1.1 million and
$3.4 million for the years ended December 31, 2013 and 2012, respectively. Of this amount, approximately $1.0 million was recorded
as an adjustment to FDIC loss share receivable due to the changes in estimated cash flows at December 31, 2013 as compared to $3.4
million at December 31, 2012.

During the year ended December 31, 2013, we sold approximately
$33.7 million of securities resulting in a net gain of $824,000 as compared to 2012 when we sold $102.5 million of securities for
a net gain of $1.7 million.

The increase in earnings on the cash surrender value of Company
owned life insurance of $120,000 for the year ended December 31, 2013 as compared to the prior year was due to the purchase of
$3.0 million in policies in 2013.

The adjustment to the FDIC loss share receivable during
the years ended December 31, 2013 and 2012 represented $15.8 million and $13.7 million of expense, respectively, related to
changes in cash flows on assets covered by Loss Sharing Agreement and the resolution of other real estate owned property
which reduces the FDIC receivable. These amounts were partially offset by interest income earned on the FDIC receivable of
$574,000 and $1.2 million during the years ended December 31, 2013 and 2012, respectively.

Year Ended December 31, 2012, compared
to Year Ended December 31, 2011

Non-interest income decreased to a net charge of $2.7 million
for the year ended December 31, 2012 from $1.7 million for the year ended December 31, 2011. The change was due to an increase
in adjustments to reduce the FDIC loss share receivable during the year ended December 31, 2012 as compared to the same period
in 2011 due to the resolution, including sales, payoffs and transfers to other real estate owned, of acquired in excess of fair
value and changes in cash flows of loss share assets offset by an increase in gains on the sales of securities and resolution of
OREO and an increase in the interest income received on Company owned life insurance.

61

Service charges on deposit accounts decreased by $130,000
or 3.6% for the year ended December 31, 2012, as compared to the year ended December 31, 2011. This decrease was primarily due
to the change in the mix and level of individual customer accounts year-over-year offset by an increase in average deposits of
19.4% in 2012 as compared to 2011 due to the acquisition of $161.0 million in deposits from the AFI merger.

For the year ending
December 31, 2012, the Bank sold OREO properties with a carrying value of $24.1 million and recorded net gains on the disposition
of $3.3 million as compared to sales of OREO with a carrying value of $6.1 million for a net loss of $264,000 for the year ended
December 31, 2011. Net gains related to the resolution of OREO covered under Loss Sharing Agreements was $3.4 million and $0 for
the years ended December 31, 2012 and 2011, respectively. Of this amount, approximately $3.4 million was recorded as an adjustment
to FDIC loss share receivable due to the changes in estimated cash flows.

During the year ended December 31, 2012, we sold approximately
$102.5 million of securities resulting in a net gain of $1.7 million as compared to 2011 when we sold $20.3 million of securities
for a net gain of $364,000.

The increase in earnings on the cash surrender value of Company
owned life insurance of $347,000 for the year ended December 31, 2012 as compared to the prior year was due to the purchase of
$15.5 million in policies in 2012.

The adjustment to the FDIC loss share receivable during the
years ended December 31, 2012 and 2011 represented a $13.7 million and $3.8 million expense, respectively, related to increases
in cash flows on assets covered by Loss Sharing Agreement which reduces the FDIC receivable. The $13.7 million for the year ended
December 31, 2012 includes $3.2 million related to resolved OREO covered by loss share assets during the year and the related charges
in estimated cash flows. This amount was partially offset by interest income earned on the FDIC receivable of $1.2 million and
$566,000 during the years ended December 31, 2012 and 2011, respectively.

Non-Interest Expenses

The following is a schedule of non-interest expense for years
ended December 31, 2013, 2012 and 2011:

(Dollars in thousands)

Years ended December 31,

2013

2012

2011

Salaries and employee benefits

$

25,023

$

24,303

$

20,186

Occupancy and equipment

8,100

7,958

7,732

Data processing

3,903

3,686

3,481

Telephone

899

917

814

Stationary and supplies

382

480

387

Amortization of intangibles

745

684

514

Professional fees

1,675

1,631

1,131

Advertising

263

258

293

Merger reorganization expense

1,745

1,784

1,076

Disposal of banking centers and equipment

828

—

—

Regulatory assessment

1,595

1,482

1,395

Other real estate owned expense

2,040

1,245

323

Loan expense

1,448

2,307

1,900

Other

4,626

4,249

3,613

$

53,272

$

50,984

$

42,845

Year Ended December 31, 2013, compared
to Year Ended December 31, 2012

Non-interest expense is comprised of salaries and employee
benefits, occupancy and equipment expense, and other operating expenses incurred in supporting our various business activities.
During the year ended December 31, 2013, non-interest expense increased to $53.3 million compared to $51.0 million for the year
ended December 31, 2012, an increase of $2.3 million or 4.5%. The increase was primarily due to the strategic decision to close
two banking centers and the write-off of obsolete equipment as well as an increase in the write-downs to other real estate owned
due to updated appraisals received during the year.

Salary and employee benefit costs were $25.0 million for
the year ended December 31, 2013, an increase of $720,000 or 3.0%.The change was due primarily to the addition of 14 new employees
related to the acquisition of EBI.

62

Occupancy and equipment increased by $142,000 or 1.8%. The
increase was due to the addition of two new banking centers acquired from EBI offset by closures of two legacy banking centers.
Of the two banking centers closed, one was located in South Florida and closed in January 2014 and the other was located on the
west coast of Florida and closed in the third quarter of 2013. The total estimated annualized occupancy savings due to the closure
of these banking centers is approximately $1.0 million per year.

Data processing increased $217,000 or 5.9% from $3.7
million for the year ended December 31, 2012 to $3.9 million for the year ended December 31, 2013 due to increased
transactions related to the acquisition of EBI in July 2013.

Merger reorganization expenses were consistent year-over-year.
The $1.7 million of expense for the year ended December 31, 2013 was due to the merger and integration of EBI which was completed
during the third quarter of 2013. Merger reorganization expense for the year ended December 31, 2012 related to the integration
of Old Harbor as well as the merger and integration of AFI. Merger reorganization expenses include legal and professional, IT integration
and conversion, severance and lease termination expense.

Disposal of banking centers and equipment relates to the
decision to strategically close one banking center in South Florida and close one banking center on the west coast of Florida.
The Company recorded an expense of $632,000 for the remaining facility lease, write-off of leasehold improvements and other fixed
assets and severance costs. Additionally, the Company disposed of computer storage related equipment which was determined to be
obsolete during the quarter ended December 31, 2013 and recorded a charge of $178,000 related to the write-off of these fixed assets.

OREO expense increased by $795,000 to $2.0 million for the
year ended December 31, 2013, as compared to $1.2 million for the year ended December 31, 2012. The change was due to an increase
in write downs on OREO due to changes in estimated fair values during the year ended December 31, 2013 of $1.1 million as compared
to $340,000 for the year ended December 31, 2012.

Loan expenses primarily include the costs associated with
the collection of legacy as well as loss sharing assets. Loan expenses decreased by $859,000 from $2.3 million for the
year ended December 31, 2012 compared to $1.4 million for the year ended December 31, 2013. The change was primarily due to a
reduction in impaired and classified loans period-over-period and a reduction in loans covered under loss sharing agreements.

The increase in other non-interest expenses of $377,000 was
due to the EBI Merger.

Year Ended December 31, 2012, compared
to Year Ended December 31, 2011

Non-interest expense is comprised of salaries and employee
benefits, occupancy and equipment expense, and other operating expenses incurred in supporting our various business activities.
During the year ended December 31, 2012, non-interest expense increased to $51.0 million compared to $42.8 million for the year
ended December 31, 2011, an increase of $8.1 million or 19.0%. A substantial portion of the increase in non-interest expense was
due to the acquisition of Old Harbor in October 2011 as well as the AFI Acquisition in April 2012.

Salary and employee benefit costs were $24.3 million for
the year ended December 31, 2012, an increase of $4.1 million or 20.4%. The increase was primarily a result of the salaries added
in the acquisition of Old Harbor in October 2011 as well as the AFI Acquisition in April 2012.

Occupancy and equipment increased by $226,000 or 2.9% year-over-year.
The Company integrated and closed four banking centers in May 2011, which were added as part of the TBOM acquisition in 2010. This
cost was partially offset by the seven banking centers added from the AFI Acquisition in April 2012 and Old Harbor acquisition
in October 2011.

Data processing costs were $3.7 million for the year ended
December 31, 2012 or an increase of $205,000 compared to 2011, due to the increase in the number of transactions processed as a
result of the acquisitions of Old Harbor in October of 2011 and AFI in April of 2012.

Professional fees were $1.6 million, or an increase of $500,000
compared to 2011 due to an increase in professional services related to audits and computer consulting due to the expansion of
operations period-over-period.

63

Merger reorganization expenses increased by $708,000 to $1.8
million for the year ended December 31, 2012 as compared to $1.1 million for the year ended December 31, 2011, as a result of the
integration of Old Harbor and the merger and integration of AFI during the year ended December 31, 2012. The $1.1 million of expense
for the year ended December 31, 2011 was the result of the integration of TBOM. Costs include legal and professional, IT integration
and conversion, severance and lease termination fees.

OREO expense increased by $922,000 to $1.2 million for the
year ended December 31, 2012, as compared to $323,000 for the year ended December 31, 2011. The increase is due to an increase
in the number of OREO properties (primarily a result of ORE acquired from the Old Harbor transaction in October 2011) period-over-period
and the write down of properties held within the portfolio by $340,000 during the year ended December 31, 2012 to market values
during the year.

Loan expenses primarily include the costs associated with
the collection of legacy as well as loss sharing assets. Loan expenses increased by $407,000 from $1.9 million for the year ended
December 31, 2011 to $2.3 million for the year ended December 31, 2012. The change was primarily due to foreclosure related expenses
associated with the increase in loss share assets as a result of the Old Harbor acquisition.

Increases in other non-interest expenses of $636,000 were
primarily due to the AFI merger and the acquisition of Old Harbor.

Income Tax Expense (Benefit)

During the year ended December 31, 2013, we recognized income
tax expense of $4.1 million due to pre-tax earnings of $11.0 million. During the year ended December 31, 2012, we recognized income
tax expense of $2.8 million due to pre-tax earnings of $7.5 million. During the year ended December 31, 2011, we recognized income
tax expense of $2.3 million due to pre-tax earnings of $6.0 million. The effective tax rate for the years ended December 31, 2013
and 2012 was 37.3% and 38.1% for the year ended December 31, 2011.

Analysis for Three Month Periods
ended December 31, 2013 and 2012

Results of Operations

We recorded net earnings of $2.6 million for the quarter ended December 31, 2013, compared to net earnings
of $1.7 million for the quarter ended December 31, 2012. Income for the quarter ended December 31, 2013 was positively impacted
by the EBI acquisition in July 2013, an increase in interest income due to net loan growth and purchases of securities available
for sale and a reduction in the provision for loan losses quarter over quarter offset by an increase in non-interest expense due
to the write-off of computer equipment and write-downs to our other real estate owned portfolio due to updated appraisals received.

Net Interest Income

Net interest income, which constitutes our principal source
of income, represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities.
Our principal interest-earning assets are federal funds sold, investment securities and loans. Our interest-bearing liabilities
primarily consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits and money
market accounts. We invest the funds attracted by these interest-bearing liabilities in interest-earning assets. Accordingly, our
net interest income depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the
interest rates earned or paid on them.

The following table reflects the components of net interest
income, setting forth for the periods presented, (1) average assets, liabilities and shareholders’ equity, (2) interest income
earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning
assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning
assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest-earning
assets).

64

Net interest earnings for the three-month periods ended December
31, 2013 and 2012 are reflected in the following table:

December 31, 2013

December 31, 2012

(Dollars in thousands)

Average Balance

Interest Income/ Expense

Average Rates Earned/ Paid

Average Balance

Interest Income/ Expense

Average Rates Earned/ Paid

Assets

Interest-earning assets

Loans

$

1,132,668

$

19,682

6.89

%

$

924,306

$

17,321

7.43

%

Investment securities

337,525

2,125

2.52

%

224,747

1,070

1.90

%

Federal funds sold and securities purchased under resale agreements

65,825

157

0.95

%

182,199

221

0.48

%

Total interest-earning assets

1,536,018

21,964

5.67

%

1,331,252

18,612

5.55

%

Non interest-earning assets

236,583

232,102

Allowance for loan losses

(10,068

)

(9,618

)

Total assets

$

1,762,533

$

1,553,736

Liabilities and Shareholders’ Equity

Interest-bearing liabilities

NOW accounts

$

249,135

$

75

0.12

%

$

165,117

$

57

0.14

%

Money market accounts

354,508

265

0.30

%

335,112

293

0.35

%

Savings accounts

62,472

43

0.27

%

64,069

42

0.26

%

Certificates of deposit

291,623

546

0.74

%

320,394

725

0.90

%

Fed funds purchased and repurchase agreements

15,180

4

0.13

%

15,794

6

0.15

%

Federal Home Loan Bank advances and other borrowings

35,400

48

0.54

%

—

—

—

%

Total interest-bearing liabilities

1,008,318

981

0.39

%

900,486

1,123

0.49

%

Non-interest bearing liabilities

Demand deposit accounts

507,960

405,857

Other liabilities

10,541

7,115

Total non-interest-bearing liabilities

518,501

412,972

Shareholders’ equity

235,714

240,278

Total liabilities and shareholders’ equity

$

1,762,533

$

1,553,736

Net interest spread

$

20,983

5.29

%

$

17,489

5.06

%

Net interest on average earning assets - Margin

5.42

%

5.21

%

Our net interest income for the three months ended
December 31, 2013 was impacted by an increase in total average earning assets of $204.8 million or 15.4% offset by an
increase of $107.8 million or 12.0% in interest bearing liabilities as compared to the three months ended December 31, 2012.
The increases were primarily due to the acquisition of EBI in July 2013.

Interest earnings for the current quarter were positively
impacted by the accretion of discounts related to acquired loans of approximately $6.2 million as compared to $5.6 million for
the same period in 2012. Included in the $6.2 million of accretion of discount for the quarter ended December 31, 2013 was approximately
$5.0 million related to the disposition of assets acquired in the transactions above the discounted carrying value of the asset
and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows. For the quarter ended December
31, 2013, we took a charge of approximately $4.7 million, including $102,000 related to the resolution of other real estate owned,
as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income within the consolidated statements
of operations and was substantially related to changes in cash flows of loss share assets. Included in the $5.6 million of accretion
discount for the quarter ended December 31, 2012 was approximately $3.4 million related to the disposition of assets above the
discounted carrying values and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows.
For the quarter ended December 31, 2012, we took a charge of approximately $3.6 million, including $297,000 related to the resolution
of other real estate owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income
within the consolidated statements of operations substantially related to changes in cash flows of loss share assets.

Net interest income was $21.0 million for the three months
ended December 31, 2013, as compared to $17.5 million for the three months ended December 31, 2012, an increase of $3.5 million,
or 20.0%. The change resulted from an increase in total average earning assets of $204.8 million offset by an increase of $107.8
million in interest bearing liabilities, an increase in accretion on acquired loans and a reduction in cost of funds.

The net interest margin (i.e., net interest income divided
by average earning assets) increased 21 basis points from 5.21% during the three months ended December 31, 2012 to 5.42% during
the three months ended December 31, 2013. Accretion of $6.2 million on acquired loans added approximately 159 basis points to the
quarter ended December 31, 2013 net interest margin. Of the 159 basis points, 129 basis points related to resolved loss share assets
and changes in cash flows during the quarter. This compares to accretion of loan discount of $5.6 million during the three months
ended December 31, 2012, which added approximately 166 basis points to the December 31, 2012 margin. Of the 166 basis points for
the quarter ended December 31, 2012, 101 basis points related to resolved loss share assets and changes in cash flows.

For the three months ended December 31, 2013, average loans
represented 73.7% of total average interest-earnings assets and 76.5% of total average deposits and customer repurchase agreements,
compared to average loans of 69.4% of total average interest-earning assets and average loans of 70.8% to total average deposits
and customer repurchase agreements at December 31, 2012. Our cost of funds was approximately 8 basis points lower for the three
months ended December 31, 2013, as compared to December 31, 2012, primarily as a result of lower rates offered on our deposit products.

Rate Volume Analysis

The following table sets forth certain information regarding
changes in our interest income and interest expense for the three months ended December 31, 2013 as compared to the three months
ended December 31, 2012. For each category of interest-earning assets and interest-bearing liabilities, information is provided
on changes attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated
based on the proportionate absolute changes in each category.

65

Changes in interest earnings for the three months ended
December 31, 2013 and 2012: